Kingsgate Consolidated Limited Annual Report 2016

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FY2016 Annual Report · Kingsgate Consolidated Limited

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ABN 42 000 837 472

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2016
Annual Report

www.kingsgate.com.au

THAILANDCHILECHATREENUEVA ESPERANZA1

Contents

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Contents

Chairman’s Review . . . . . . . . .

CEO’s Review . . . . . . . . . . .

Five Year Summary . . . . . . . . .

Finance Report . . . . . . . . . .

Operations Report . . . . . . . . .
Chatree Gold Mine . . . . . . . . . . .
Challenger Gold Mine . . . . . . . . . .

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11

Projects Report . . . . . . . . . . . 12
12
Nueva Esperanza . . . . . . . . . . .
17
Bowdens Silver Project . . . . . . . . .

Auditor’s Independence Declaration . . 48

Financial Statements . . . . . . . . 49

Consolidated Statement of Profit or Loss
and Other Comprehensive Income . . . . .

Consolidated Statement of Financial Position .

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows . . .

Exploration Report . . . . . . . . . 18

Notes to the Financial Statements . . . 54

Ore Reserves and Mineral Resources

Directors’ Declaration . . . . . . . . 97

Senior Management . . . . . . . . . 22

Independent Auditor’s Report . . . . . 98

Directors’ Report . . . . . . . . . . 23

Shareholder Information . . . . . . . 100

Remuneration Report . . . . . . . . . .

Corporate Information . . . . . . . . 102

Photo:
Some of the more than
4,000 local supporters that
turned out in support of
Akara Resources on 19 May
2016, after the Thai
Government announced
that it would prematurely
close the Chatree Gold Mine
on 31 December 2016

Cover Photo:
Field work at Nueva
Esperanza by Haroldo
Padilla Fuentes

Chairman’s Review

The decision by the Thai Military
Government in May to only
extend the Metallurgical Licence
of the Chatree Gold Mine until
31 December 2016, came as a
major blow to your Company and
has concentrated the efforts of
both management and your
Board ever since.

This unprecedented action, based as it is on
a litany of lies and false representations, and
fed by an unquestioning media, raises many
questions that are likely to haunt the Thai
economy for a long time to come.

I repeat here what I have stated many times
before – there have been no environmental
incidents from the Chatree Gold Mine since
its inception; there has been no pollution and
there has been no health effects on either our
workforce or surrounding population that
has ever been verified by supporting medical
evidence. All such false claims have been proven
over and over again by independent authorities
to the satisfaction of courts, regulatory
authorities and health authorities to be without
foundation. The sad thing is that the various
government departments know this but seem
somewhat constrained in communicating it.

Despite some of the more ridiculous
commentary that has emanated in the media,
Chatree is one of the most regulated and highly
scrutinised mining operations in the world. As
an example, the Company has been accused
of polluting local water supplies, yet the
Department of Primary Industries and Mines
(the main regulatory authority) has records
going back 15 years since the start of mining
operations clearly showing no such thing.

Kingsgate is proud of its record in Thailand
with its accent always being on safety, health,
the environment and working closely with the
local population. We have always considered
ourselves as guests in the country, and as being
in partnership with the local people. This has
been acknowledged over the years both locally
and internationally, and by successive Thai
Governments, with Kingsgate being the recipient
of numerous awards covering all these aspects.

To see our legacy trashed by a small but vocal
minority for reasons of personal, commercial,
political and ideological positions, without
any regard for the vast majority of the local
population, who benefit immensely from our
operation, is particularly sad.

However, if the mine is forced to close, apart
from the profound effect on your Company
and you as shareholders, probably the saddest
aspect is the devastating effect it will have on
our loyal workforce, many of whom we have
helped to educate, promote, gain in confidence
and to grow over the years. Despite claims by the
Government, there is basically little or no chance
of them achieving anything like comparable
employment in the local area. Additionally,
the standard of living of surrounding villages
and towns (which has increased immensely
over recent years and is a major reason for the
Company receiving Thai Board of Investment
incentives) will suffer severely as a consequence
of the Government’s ill thought through decision.

We stand by our proud record of operating
an environmentally sustainable, best practice
modern mining operation that has contributed
significantly over the past 15 years to the Thai
economy and the local community.

I do appreciate that some shareholders may feel
some frustration over the voluntary suspension
of trading of your shares, and that diplomatic
and the investigation of potential legal and
other remedies may sound a little vague, but
I can assure you that everything possible is
being done to recover the situation and seek
compensation for shareholders.

www.kingsgate.com.au

I am sure that you would appreciate that these
situations, by their very nature, are highly
complex and they do take time to calmly and
methodically work through and that is exactly
what we are doing.

Given the circumstances, Kingsgate delivered a
reasonable result, with group gold production
for the year totalling 146,502 ounces, with
Chatree contributing 97,510 ounces and
Challenger, before being sold, delivering a solid
48,992 ounces.

Chatree did come in under the original
guidance, as the cut-back of the A pit and issues
surrounding equipment availability and mainte-
nance, were contributing factors. But as the
new year has progressed grade and production
have increased significantly as we endeavour
over the next few months to achieve maximum
cash flow and thereby cover all of our debts and
obligations in Thailand.

Since taking on the role of Chief Executive
Officer last year, Greg Foulis, has provided a
steady hand to the tiller as he has conscien-
tiously worked to cut costs, streamline the
management team and rationalise non-core
assets so that Kingsgate has emerged even
leaner than in previous years and is poised to
take advantage of an improved gold market.

Both the Challenger Gold Mine and the Bowdens
Silver Project have been sold, with the need to
focus on our most advanced asset, the Nueva
Esperanza Silver/Gold Project in Chile.

Nueva Esperanza continues to delight with the
release of a Pre-Feasibility Study in April, 2016
that confirmed just how good that project is
starting to look, with notable highlights including
an NPV5%1 of US$168 million, an IRR of 25%
and the first 5 years of production having the
potential to average 135,000 ounces (AuEQ60)2
per annum at US$633 per ounce cash costs.

CEO’s Review

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CEO’s Review

Dear Shareholders,

Achievements

Since assuming the role of CEO
in June 2015, I can say the last
12 months for Kingsgate has
been nothing short of a
challenging and difficult
journey. The business faced the
depths of a 10-year low gold
price in late 2015, and our
operating difficulties reached a
crescendo in Thailand in May
2016, with the Thai Military
Government announcing they
will prematurely close the
Chatree Gold Mine.

Kingsgate is bitterly disappointed about the
destructive impact of the Thai Government
actions on our employees and our business,
and we are now left in the unenviable position
of having to deal with the fallout.

It has also become clear that the events of the
past year have heralded dramatic change for
Kingsgate. Thailand aside, I want to emphasise
the point that the decision to sell the
Challenger Gold Mine and the Bowdens Silver
Project were to ensure that Kingsgate success-
fully navigated the volatility in the precious
metals market, and that’s exactly what we
have done.

So now let me break down the year for you in
to our key achievements, and our key
challenges that will ultimately shape our
strategy and work flow for the year ahead.

We delivered on both portfolio and
management rationalisation, with a strong
focus on continuing debt reduction. We also
clearly defined the Nueva Esperanza Project
potential and way forward. We are addressing
the challenges in Thailand.

Portfolio Rationalisation

We started the year with two operations and
two development projects and the choice was
clear to rationalise and divest non-core
Australian assets and focus on Chile. Based on
financial constraints and project factors,
Kingsgate chose to back the more advanced
Nueva Esperanza Project over Bowdens, from
which the sale funds of A$25M will be used to
advance Nueva Esperanza towards a devel-
opment decision.

Nueva Esperanza Development

At Nueva Esperanza, we took a fresh look at
the Project, firstly rolling all new and historic
information into an optimisation study which
was completed to a Pre-Feasibility Study level.
The study, published in April 2016, demon-
strates the sound economic potential and way
forward. The current project aims to deliver 1.1
million ounces of gold equivalent over a 11.6
year life at a life of mine cash cost of US$706/
ounce gold equivalent. However, we are most
excited about the ability to enhance economics
by bringing forward higher production in
the first five years. Beyond the existing Ore
Reserves, there is significant potential to
increase the life and size of the Project.

In FY17, we are building momentum on
exploration, feasibility and permitting in Chile,
and we have a well-defined strategy. A new
exploration team, led by Vice President Explo-
ration, Alistair Waddell, has developed new
high priority targets based on synthesising of a
large volume of previously disparate geological
information.

As exploration continues at Nueva Esperanza
and more positive results are realised, we will
be looking for ways to capitalise and grow this
project, and there are a number of proposals
being looked at currently.

As Kingsgate continues to navigate the
uncertainty of Thailand, the Board remains more
committed than ever to ensure your Company
not only survives but repositions itself to thrive
as we look towards optimising the Nueva
Esperanza Project, our people and our structure
to rebuild shareholder wealth. As has always
been the case with Kingsgate, shareholder
returns will be at the forefront of everything we
do over the coming weeks and months.

I would once again like to thank all the
management and personnel of Kingsgate, Akara,
Challenger and the project teams for their efforts
in delivering the operational performance in an
otherwise difficult year. I firmly believe we are
taking the right steps in the right direction and
we hope to be able to be in a position to update
shareholders further in the near future.

Ross Smyth-Kirk
Director

Notes:

NPV5% = Net Present Value at a 5% discount rate.

Gold Equivalent: AuEq (g/t) = Au (g/t) + (Ag (g/t) ÷
60). Calculated from long term historical prices of
US$1,200/ounce for gold and US$19.00 for silver
and combined life of mine average metallurgical
recoveries of 80% Au and 84% Ag estimated from
test work by Kingsgate. It is Kingsgate’s opinion
that all elements included in the metal equivalents
calculation have a reasonable potential to be
recovered and sold. Although gold is not the
dominant metal, gold equivalent values are reported
to allow comparison with Kingsgate’s other
projects. Nueva Esperanza silver equivalent: AgEq
(g/t) = Ag (g/t) + Au (g/t) x 60.

CEO’s Review

Kingsgate is in the process of appointing
another set of fresh eyes to the team in Chile in
the form of a Vice President - Projects, who will
be delivering outcomes on the permitting and
feasibility in calendar 2017.

Operating Performance

Setting aside the premature closure
announcement for a moment, the Chatree Gold
Mine performance in FY16 was constrained by
operating and permitting issues. The Thai
mining contractor had significant productivity
and availability issues, which significantly
impacted mining rates and gold production.
Following the closure notice, an asset review
team tasked with reinvesting in a new mining
fleet and contract was disbanded in May 2016.

For the period to December 2016, the Thai
business is focused on a production outcome
that should generate sufficient cash to satisfy
the repayment of outstanding debt and
employee obligations. Navigating stakeholder
issues associated with closure is difficult.
Kingsgate is pursuing many options with respect
to controlling risks and pursuing avenues to
recover value.

The Challenger Gold Mine made a useful
financial contribution to Kingsgate prior to sale
in March 2016, producing 48,992 ounces at a
total cash cost of US$763/ounce. Challenger
was however, very dependent on exploration
success and had become a volatile hand-to-
mouth operation.

Challenges and Opportunities

The Way Forward...

We appreciate shareholder understanding and
patience as legal, financial, operating and diplo-
matic matters relating to Thailand remain
uncertain and highly sensitive.

Over the past year, management and the Board
have delivered on reshaping and repositioning
the portfolio.

Our immediate focus for FY17 is to weather the
challenges and come out the other side, both
protecting and enhancing shareholder value.

The reality is that we have a great project and
team in Chile plus a considered approach to
dealing with issues in Thailand.

We will also be considering the best corporate
structure to maximise value and move forward.

I am confident we will successfully address and
deal with the key issues facing Kingsgate, and I
look forward to updating you on our progress.

Greg Foulis
Chief Executive Officer

Since peaking at US$1,893/oz in September
2011, the gold price steadily fell over the
following years until it hit a low of US$1,054/oz
in December 2015, a 44% drop over this period.
While improvements in productivity and
planning helped to ease production costs,
the impact lead to a significant reduction in
operating margins.

Pleasingly, since December 2015, the gold price
has recovered, with the range of US$1,275–
US$1,300/oz.

The silver price has also seen a similar profile,
with prices above US$35/oz in late 2011,
decreasing down to US$13.72/oz in late 2015
before recovering back to around US$18/oz.

These price fluctuations resulted in widely
varying operating margins for our operations
throughout the reporting period. The recent
improvement in the gold and silver price has
positively impacted Chatree’s cashflow gener-
ating potential, whilst the economics for Nueva
Esperanza are enhanced at these spot prices.

However, the fluctuations in the gold and silver
price are no match when it comes to the impact
on the business compared to the decision by the
Thai Military Government to close Chatree by
the end of 2016.

The early closure decision, which was made based
on unfounded allegations and a complete lack of
supporting evidence, has had and will continue to
have a significant impact upon Kingsgate, its
shareholders, employees, contractors and local
communities.

The closure will see the loss of 1,000 direct jobs
in the local community, which will be hard to
replace based on the skills that have been
acquired. A non-cash impairment charge of
$227.6 million against the carrying value of
Chatree in our view is a partial reflection of the
incredible financial impact and loss of value that
the closure will have on your Company.

www.kingsgate.com.au

Five Year Summary

PRODUCTION – Chatree

Ore mined ('000 bank cubic metres)
Waste mined ('000 bank cubic metres)
Waste to ore ratio
Ore mined ('000 tonnes)
Ore treated ('000 tonnes)
Head grade – Gold grams/tonne
Head grade – Silver grams/tonne
Gold recovery (%)
Gold poured (ounces)
Silver poured (ounces)

PRODUCTION – Challenger

Ore mined ('000 tonnes)
Ore treated ('000 tonnes)

Head grade – Gold grams/tonne

Gold recovery (%)
Gold poured (ounces)

PROFIT & LOSS (A$’000)

Sales revenue
Operating expenses
Administration expenses
Other (expenses)/income
EBITDA
Impairment losses
Depreciation & amortisation
EBIT
Net finance (costs)/income
Profit/(loss) before income tax
Income tax (expense)/benefit
Net profit/(loss) after income tax
Non-controlling interests
Net profit/(loss) attributable to owners of Kingsgate Consolidated Limited

BALANCE SHEET (A$’000)

Current assets – cash and cash equivalent
Current assets – other
Non-current assets
Total assets
Liabilities – borrowings
Liabilities – other
Total liabilities
Shareholders' equity

OTHER INFORMATION

Average gold price received (US$/ounce)
Cash cost (US$/ounce)
Total cost (US$/ounce)
Operating cashflow (A$'000)
Dividends paid (Cash & DRP) (A$'000)
Number of ordinary shares ('000)
Basic earnings per share (A$ Cents)
Dividends per share declared for the year (A$ Cents)

Five Year Summary

2012

2013

2014

2015

2016

1,947
6,259
3.2
4,986
5,116
0.9
11.6
84.4
121,372
918,314

2,709
3,521
1.3
7,051
5,699
0.9
11.9
79.9
133,681
1,000,569

2,378
2,193
0.9
6,176
6,235
0.9
12.9
79.4
134,546
992,255

1,831
1,133
0.6
4,768
5,283
0.9
13.1
79.3
125,094
850,003

1,208
2,965
2.5
3,168
5,515
0.7
11.5
79.8
97,510
675,579

(12 months)

(*8.5 months)

y
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m
m
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Y
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607
645

4.6

92.4
87,388

357,372
(171,505)
(12,737)
(6,398)
166,732
–
(67,553)
99,179
(7,902)
91,277
(16,271)
75,006
153
75,159

87,031
97,817
856,313
1,041,161
157,544
115,102
272,646
768,515

1,663
721
1,028
165,247
22,025
151,264
52.5
20.0

502
557

3.9

94.5
66,216

329,282
(192,538)
(15,516)
(24,804)
96,424
(332,808)
(90,965)
(327,349)
(16,222)
(343,571)
16,504
(327,067)
–
(327,067)

30,494
99,087
628,870
758,451
199,758
95,594
295,352
463,099

1,588
869
1,311
92,734
22,738
152,192
(215.0)
5.0

500
506

4.8

96.1
74,954

328,326
(244,366)
(15,304)
(4,449)
64,207
(86,698)
(58,986)
(81,477)
(13,250)
(94,727)
(2,886)
(97,613)
–
(97,613)

53,632
82,170
505,293
641,095
153,632
76,790
230,422
410,673

1,291
936
1,167
38,608
–
223,585
(56.7)
–

509
515

5.0

96.7
80,151

313,162
(225,175)
(13,825)
(4,704)
69,458
(148,181)
(53,950)
(132,673)
(14,319)
(146,992)
(651)
(147,643)
–
(147,643)

55,472
75,905
413,633
545,010
142,623
77,754
220,377
324,633

1,208
833
1,023
76,646
–
223,585
(66.0)
–

518
386

4.0

96.0
48,992

253,328
(196,244)
(14,372)
(2,848)
39,864
(210,969)
(46,177)
(217,282)
(12,129)
(229,411)
(40)
(229,451)
–
(229,451)

36,314
56,796
159,395
252,505
98,097
62,044
160,141
92,364

1,135
851
1,085
46,493
–
223,585
(102.6)
–

On 30 October 2015, Kingsgate announced an Option Agreement was reached with a 50/50 Joint Venture between Diversified Minerals Pty Ltd and WPG Resources Limited
(“Purchasers”), whereby the Purchasers would acquire 100% of the Challenger Gold Mine and certain exploration licences for consideration of $1,000,000 and a $25
per ounce revenue royalty on future production in excess of 30,000 ounces from the Challenger SSW Zone. The Option Agreement was exercised on 11 December 2015.
A Share Purchase Agreement was executed on 19 February 2016 and the sale was completed on 15 March 2016.

Finance Report

Summary
〉〉 Revenue of $253.3 million;
〉〉

EBITDA (before significant items) of
$39.9 million;

〉〉

Loss before tax and significant items of
$18.4 million;

〉〉 Non-cash asset impairment of $227.6 million

relating to Chatree Gold Mine;

〉〉 Non-cash asset impairment reversal of

$16.6 million relating to the Bowdens Silver
Project;

〉〉 Challenger Gold Mine sold for $1 million

plus royalty;

〉〉 Bowdens Silver Project sold for total

consideration of $25 million;
〉〉 No dividends have been declared.

Depreciation and amortisation
Depreciation and amortisation included in the
cost of sales was $46.0 million (2015: $53.7
million). The decrease was a result of lower
production at Chatree and the impact of the
2015 asset impairment which resulted in a
reduction of the carrying value of depreciable
assets.

Impairment
The Group recorded non-cash impairments
against the carrying values of Chatree ($227.6
million) as a result of the forced closure of
this mine at the end of 2016. In accordance
with accounting standards, the Group is
required to assess the carrying value of
operating and development projects within
a set valuation framework that reflected the
mine closure. Non-cash asset impairment
reversals were made in respect of Challenger
($0.4 million) and Bowdens ($16.6 million)
to reflect the sale price being above the
previously impaired carrying values.

Finance costs
Finance costs were $12.6 million and mainly
comprise interest on borrowings the Group has
in place, unwinding of the discount on provisions
as required by Accounting Standards, foreign
currency movements on foreign currency
denominated loans and amortisation of previ-
ously capitalised borrowing establishment fees.

Earnings

The Group recorded a 2% increase in total cash
costs to US$851 per ounce (2015: US$833 per
ounce), as well as lower gold sales of 151,313
ounces (2015: 202,489 ounces) and a lower
realised gold price of US$1,135 per ounce (2015:
US$1,208 per ounce).

The decrease in gold sales reflected a 20%
decrease in production at Chatree compared
to the prior year, due to mining fleet availability
issues and delayed access to higher grade ore.
Production at Challenger was 39% lower than
the prior year, due to cessation of underground
mining in December 2015 with remaining ore
being sourced from the SEZ open pit before the
sale of the mine to WPG Resources Limited/
Diversified Minerals Pty Ltd in March 2016.

The announcement by the Thai Government to
not extend the metallurgical licence beyond
31 December 2016 resulted in an impairment
to the carrying value of Chatree of $227.6
million pre-tax. This impairment was the major
contributor to the after tax loss of $229.5
million for the year.

Cost of sales
Cost of sales before depreciation decreased
by 13% to $196.2 million compared to last
year which largely reflects decreased mining
production from the Chatree Mine, due primarily
to mining fleet availability issues, and cessation
of mining at Challenger. The total unit cash cost
for Chatree for the year was US$895 per ounce
(US$797 per ounce excluding royalties) (2015:
US$690 per ounce and US$595 per ounce
excluding royalties). The total unit cash cost for
Challenger for the year was US$763 per ounce
(2015: US$1,059 per ounce). On a unit cost basis
total cash costs for the Group were US$851 per
ounce (2015: US$833 per ounce).

www.kingsgate.com.au

Finance Report

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Income Tax
On 18 June 2010, Kingsgate’s Thai subsidiary
company, Akara Resources Public Company
Limited (Akara), received approval from The
Royal Thai Board of Investment (BOI), for a
promotion in respect of the Chatree North gold
processing plant. Based on an annual production
limit from the new processing plant of 185,200
ounces of gold and 1,080,400 ounces of silver,
Akara is entitled to:

An eight year tax holiday on income derived
from the new processing plant with tax
savings limited to the capital cost of the
new treatment plant;

A 25% investment allowance on the capital
cost of certain assets of the new
processing plant; and

c) Other benefits.

The taxable losses from the Australian opera-
tions are only recognised to the extent of
deferred tax liabilities. The balance of tax losses
has been added to the Group’s brought-forward
tax losses, leaving a balance of $302 million of
taxable losses (unrecognised tax asset of $91
million) to be carried forward to future years.

Cash Flow

Net operating cash inflow was $46.5 million
(2015: $76.6 million). The decrease of $30.1
million reflects a decrease in gold and silver
sales offset by a decrease in mining costs and
lower interest payments, due to the reduction
in borrowings over the year. Net investing cash
outflow was $17.1 million (2015: $40.3 million),
down $23.2 million, representing continued
project feasibility exploration work at the Nueva
Esperanza Gold/Silver Project and completion of
Tailings Storage Facility #2 – Stage 5 at Chatree,
offset by proceeds of $20 million from the sale
of the Bowdens Silver Project. Net cash outflow
from financing activities was $48.6 million
(2015: $37.7 million), including repayment of
$47.5 million of the multi-currency loan facility
and revolving credit facility.

Financing Arrangements

Financial Position

Shareholders’ equity at 30 June 2016 was
$92 million (2015: $325 million). The decrease
of $233 million reflects the year’s loss, including
the impairment of Chatree for $228 million.

Dividends

No dividends were declared for the year ended
30 June 2016 (2015: nil).

Revolving Credit Facility
Kingsgate has a Revolving Credit Facility (“RCF”)
with $10 million drawn against this facility at
30 June 2016. A debt repayment of $5 million
was paid at the end of July 2016. The balance of
the RCF of $5 million is due for repayment at the
end of January 2017.

Kingsgate, in addition, has available over the
tenure of the RCF an Equity-linked Loan Facility
(“ELF”) of $15 million. The ELF is currently
undrawn.

Subsequent to the Thai Government decision
on 10 May 2016 that the Chatree Gold Mine
would only be able to continue to operate
until 31 December 2016, a revised mine plan
was implemented which from the planned
production profile indicates the potential to
generate sufficient cash flow to repay this
debt in full by 31 December 2016. As a result
the outstanding debt balance is classified as a
current liability. In addition, due to these circum-
stances, covenants under the loan agreement
were not met though no default notice has been
received from the financiers.

As security against the facility the lender
has a fixed and floating charge over the land,
buildings, plant and equipment in Thailand
owned by Akara and its material subsidiaries.
In addition, Akara is required to maintain a debt
service reserve account of US$5 million.

At 30 June 2016 the equivalent of $75.3
million was owed against this facility. A further
equivalent $7.3 million was repaid on 15 August
2016.

W A

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S A

CHALLENGER

Q LD

Operations Report

Operations
Report

Chatree
Gold Mine
Thailand

Chiang
Mai

CHATREE
CHATREE

N S W

Summary

Adelaide

V I C

The Chatree Gold Mine continued as Kingsgate’s
primary production asset throughout the year,
producing 97,510 ounces of gold and 675,579
ounces of silver. The main operational issues
were the scheduled cut-back of the A Pit,
ongoing maintenance and equipment avail-
ability, the effect of carbonaceous ore on
recovery rates, ongoing delays in obtaining
approvals for mining lease extensions, and the
Thai Government’s announcement on 10 May
2016 that Chatree is to prematurely cease
operations by 31 December 2016. More detailed
commentary on the premature closure of
Chatree can be found in the Director’s Report
on page 24 of this Annual Report.

V I E T N A M

L A O S

Khon
Khon Kaen

A N D

Bangkok

C A M B O D I A

Production and Costs

Mining

Production for the year was 97,510 ounces of
gold and 675,579 ounces of silver.

Total mill throughput of 5.5 million tonnes which
was slightly higher than 2015. The overall plant
availability was 91.7%.

Total cash costs for the year were US$895 per
ounce (US$797 per ounce exclusive of Thai
royalties). The average royalty paid to the Thai
Government was US$98 per ounce of gold. Total
production costs after depreciation and amorti-
sation were US$1,225 per ounce of gold
produced.

At year end, 6.7 million tonnes of ore was stock-
piled with an average contained gold grade of
0.44 grams per tonne (“g/t”) representing
95,340 ounces of gold.

During the year 3.2 million tonnes of ore was
mined, with a waste-to-ore strip ratio of 2.5:1.
The average grade of mined ore was 0.70g/t gold
and 11.5g/t silver.

The main mining exercise was the scheduled
cut-back of the A Pit, and in January 2016 the
mine transitioned to 3 x 8 hour shifts to increase
the operating hours per day. Mining was
impacted at various times throughout the year
by lower than planned excavator and truck
availability. Measures have been introduced to
address these issues, which included improve-
ments to the parts procurement system,
additional maintenance personnel, and the
appointment of a new maintenance supervisor,
however the age of the mining fleet remains a
primary concern.

www.kingsgate.com.au

Chatree Operational
Performance 2015/16

Production Summary

Ore Mined

Waste Mined

Waste to Ore Ratio

Ore Mined

Ore Treated

Head Grade – Gold

Head Grade – Silver

Gold Recovery

Silver Recovery

Gold Poured

Silver Poured

Financial Summary

Cost Summary

Mining Cost

Milling Cost

Administration & Other

Stockpile Adjustments

By Product Credit*

Cash Operating Cost
Gold Royalty

Total Cash Cost
Depreciation &
Amortisation – Operating

Depreciation &
Amortisation – Deferred
Stripping

bcm

1,208,291

2,965,381

2.5:1

tonnes

3,167,843

tonnes

Au g/t

Ag g/t

5,514,660

0.70

11.5

79.8

33.3

ounces

97,510

675,579

US$/oz

304

453

(97)

797
98

895

297

US$/oz

Total Production Cost

US$/oz

1,225

Total Cash Cost per
Tonne of Ore Treated

US$/tonne

15.83

Revenue Summary

Gold Sold

Silver Sold

Average Gold Price
Received

Average Silver Price
Received

Revenue from Metal
Production

* Net of Silver Royalties

ounces

100,557

690,818

US$/oz

1,140

US$/oz

15.2

US$m

125.2

Q LD

BOWDENS

SILVER

Newcastle

Sydney

S A

N S W

V I C

T A S

P E R U

B O L I V I A

NUEVA

ESPERANZA

Chañaral

Copiapo

Santiago

A R G E N T I N A

V I E T N A M

SAYABOULY

CHATREE

C ACHATREE

TRACHC

AAA RRREE

RRTTTTHHHHHH

CHC

EEEE

AAAAAT

L A O S

Louang

Prabang

Vientiane

Vient

T H A I L A N D

C A M B O D I A

Processing

Chatree – Sustainability

Plant No. 1 and Plant No. 2 performed with the
following availabilities 90.8% and 92.3% respec-
tively throughout the year.

A number of processing improvement projects
were completed and implemented throughout
the year which included:

〉〉

improved automation in the milling circuit to
help optimise control over throughput, grind
size and reduce mill liner wear rates; and

the acquisition of specialised equipment to
separate grit from carbon which will improve
gold and silver stripping efficiencies.

Safety

There was one lost time injury recorded during
the year. (The injury related to a minor back
strain that occurred when an employee was
moving a water pipe. The employee has since
made a full recovery). Chatree has a 12 month
rolling Lost Time Injury Frequency Rate of 0.40.

Management would once again like to commend
employees and contractors for their attention to
safety and care for each other.

Chatree adheres to Kingsgate’s Sustainability
Policy. The primary aim of the policy is to manage
the Chatree asset ethically, so the people of
Thailand and the Company prosper together,
enjoying safe, fair and rewarding working
relationships and a healthy living environment.

Community
The Chatree Gold Mine is located 280 kilometres
north of Bangkok on the provincial border of
Phichit and Phetchabun Provinces. The villages
around Chatree lead a predominantly agrarian
lifestyle with rice growing as the main activity. It
is important therefore, that Chatree is a good
corporate citizen for our immediate neighbours
and in Thailand generally. Chatree has as a
primary goal, to minimise the negative impacts of
mining operations on those living and working
nearby. We seek to achieve this through funding
of community infrastructure projects, donations,
regular meetings and consultation with local
government and village groups, and by assisting
the community in times of need.

Operations Report

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Community Funds
Corporate Social Responsibility at Chatree is a
continuing commitment to behave ethically and
contribute to economic development in the local
area, improving the quality of life of our
workforce, their families and the local
community. In order to facilitate this, we have
established four funds. These are: an “EIA Fund”
for mitigating any possible future environmental
impact, an “Or Bor Tor Fund” (a sub-district
fund), a “Village Fund” and an “Akara For Commu-
nities Fund”. Committees comprising
government officials, village leaders and
employees from Chatree manage each fund,
ensuring transparency with diligent fund
disbursement and project management.

Employees
The Chatree workforce totalled 1,036 at the end
of the year, comprising 364 Akara Resources
employees, 466 LotusHall persons with a further
206 employed as minor contractors. Turnover of
Akara permanent employees during the financial
year was 11.8% which comprised 7.4% voluntary
and 4.4% involuntary. Chatree has also
maintained its SA8000 certificate (Social
Accountability Accreditation) since 2009.

Our business is focused on employee
engagement and our objective is to ensure that
our employees are appropriately placed in roles
that are in line with our commercial goals. Akara
offers comprehensive training in relevant safety
and job-related areas to all staff and also assists
employees to obtain tertiary education
qualifications.

To date, 53 employees have been sponsored for
higher education pursuits. One employee was
sponsored for a doctoral degree, 35 for Masters
level degrees, nine for Bachelor level degrees,
eight for Diploma Certificates and one employee
was sponsored for an MBA short course.

continuedu

Operations Report

Water
While rainfall can occur year round, it is generally
concentrated during the annual monsoon period
(July to October). The responsible management
of water is therefore of utmost importance to the
Chatree mine and to the surrounding area.
Chatree operates on a nil-release basis and all rain
water on the mine lease is harvested, requiring
continuous management of usage, quality and
storage. Twenty seven surface-water and 88
groundwater quality test sites have been estab-
lished, all of which are regularly monitored and
sampled. To date, the sampling indicates that
there is no impact on groundwater and no
impacts on groundwater outside the Chatree
lease boundary.

To gauge any potential drawdown impact on local
groundwater, the mine regularly monitors 75
water table measuring stations, located on the
mine site and in surrounding villages. Water
levels rise and fall seasonally but no long-term
adverse trends have been identified.

A total of 1,507,635 tonnes of make-up water
(predominantly rainwater stored in pits) was used
to process 5,514,660 tonnes of ore during the
financial year. Water usage per tonne of ore is
increased due to a higher stripping rate in the
new Elution circuit.

Environmental Audit
In April 2016, the fifteenth annual Tailings
Storage Facility Audit was undertaken. Knight
Piésold Consulting found that the tailings facility
continues to be built and operated in accordance
with best practice principles, and that the
Chatree Processing Department demonstrates a
good understanding of the facility.

In 2016, MWH Ltd undertook an audit of the
Chatree Mine Environmental Management
System. The audit is designed to assess
compliance with conditions in the Mining Leases,
corporate commitments made in the current
Environmental Impact Assessment, adherence to
Kingsgate’s corporate environmental policy, and
our environmental performance overall.

The audit concluded that the operations of the
Chatree Gold Mine comply with all applicable
statutory requirements, as well as voluntary
environmental commitments made by Akara
Resources Public Company Limited.

www.kingsgate.com.au

Cyanide Management
Chatree continues to meet all requirements of
The International Cyanide Management Code for
gold mining operations. The Code mandates
strict protocols for the manufacture, transport,
storage and use of cyanide. The last cyanide code
audit was carried out in 2014. The certification of
Plant No. 2, the newer processing plant, and the
re-certification of the old processing plant were
announced on 25 June 2014 by the International
Cyanide Management Institute.

Readings of discharge to the Tailings Storage
Facility are taken every 60 minutes. Of the 8,784
readings taken during the reporting period, a
total of 99.9% showed the discharge of cyanide
did not exceed the 20mg/L CNTOT standard. The
highest monthly reading obtained was 16.6mg/L
CNTOT with an annual average of 12.6mg/L CNTOT.

Birds continue to nest and breed near the Tailings
Storage Facility, confirming that our cyanide
discharge presents no environmental hazard.
Ongoing cyanide destruction is also assisted by
numerous introduced micro-organisms which are
able to degrade free cyanide to carbon dioxide
and ammonia.

Incident Reporting
There were 154 environmental events during the
year. All were minor, relating to hydrocarbon leaks
and spills, and were contained except for one
reportable incident that occurred when there was
an uncontrolled release of natural surface runoff
water through a bund intended to prevent runoff
outside the mining release. This occurred in a
non-active mining area and the water was slightly
turbid. The bund was immediately repaired and
the surface drainage improved so the water
flowed to a sedimentation pond. Since the mine
is supposed to be a zero-release site, the
operation received a small fine from the
Department of Primary Industry and Mines.

Rehabilitation
No contaminated land issues arose during the
period. The rehabilitation program is ongoing
with areas contoured and planted as soon as
practicable. Trials of various species are under-
taken to ensure the optimal results for each
location and many species of trees and grass
have been sown successfully across the site.
Some 2.34 hectares were rehabilitated last year
and 9.36 hectares of rehabilitation are planned
for the present year.

Blast Vibration and Noise
Akara is mindful of the impacts that noise and
vibration from blasting may have on surrounding
residents of the mine. Blasting is restricted to
certain times of the day and measures are taken
with its blast design to minimize noise and
vibration. Noise and vibration during each blast
are monitored regularly and the data used as
feedback in the blast design process. Three new
blast vibration monitors were purchased during
the year to monitor every blast in each of the
surrounding communities. Effective noise
barriers have been developed around operations,
and in some circumstances operations have been
restricted to daylight hours.

Dust Management
Chatree’s aim is to produce minimal dust and
thereby reduce neighbouring concerns by
maintaining all mine roadways in good order
through regular gravel sheeting and watering.
Dust monitoring stations have been established
in nine surrounding villages. To further improve
monitoring capabilities, three new continuous
dust monitors were purchased and real time
monitoring and alerts put in place to notify the
operations team. All results from the regular
monitoring and sampling program have been
within required air quality standards.

Operations Report

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Chiang

Mai

CHATREE

V I E T N A M

L A O S

Khon Kaen

Khon

A N D

Bangkok

C A M B O D I A

Q LD

N S W

V I C

Adelaide

Q LD

BOWDENS

SILVER

Newcastle

Sydney

S A

N S W

V I C

T A S

P E R U

B O L I V I A

NUEVA

ESPERANZA

Chañaral

Copiapo

Santiago

A R G E N T I N A

V I E T N A M

SAYABOULY

CHATREE

C ACHATREE

TRACHC

AAA RRREE

RRTTTTHHHHHH

CHC

EEEE

AAAAAT

L A O S

Louang

Prabang

Vientiane

Vient

T H A I L A N D

C A M B O D I A

Operations
Report

W A

N T

S A

CHALLENGER
CHALLENGER

Challenger
Gold Mine
SA, Australia

Overview

Challenger is a small scale underground gold
mine located in central South Australia.

In October 2015, Kingsgate announced that it
had reached an agreement to sell the Challenger
Gold Mine to a 50/50 Joint Venture between
Diversified Minerals Pty Ltd (a 100% owned
associate of the PYBAR Group) and WPG
Resources Limited (“Purchasers”), at the
completion of the current life-of-mine plan
and exhaustion of reserves in February 2016.

Some of the key terms of sale include:

〉〉 Kingsgate will operate the mine up until
completion of commercial production in
February 2016, with the mine then placed
on Care and Maintenance;

〉〉

The Purchasers will assume all ongoing
closure liabilities;

〉〉 Kingsgate will receive a cash consideration
of A$1 million to be paid in equal quarterly
instalments from the commencement of mill
operations by the Purchasers ; and
〉〉 Kingsgate will retain a A$25 per ounce

revenue royalty on the Challenger SSW Zone
that takes effect after the first 30,000
ounces of production.

The transaction was successfully completed on
15 March 2016.

This portfolio rationalisation, similarly with the
sale of Bowdens Silver Project enables Kingsgate
to focus activities around its core strategic asset
– the prospective Nueva Esperanza devel-
opment project in Chile.

Production and Costs

Challenger maintained a solid performance with
48,992 ounces of gold produced up until
completion of the sale.

A total of 518,183 tonnes of ore were mined
and total cash costs were US$763 per ounce
(including US$44 per ounce royalty).

Mining and Processing

With underground mining ceasing in December
2015, production sources until completion of
the sale were from the SEZ open pit. Mining up
until March 2016 focused on completing the last
high grade benches of the SEZ pit so that the
ore would be processed prior to placing the site
onto care and maintenance. Processing during
that period focused on the highest value open
pit ore. Processing was completed on 5 March
2016, and the site was placed on care and
maintenance for the transition of ownership
to WPG Resources.

continued

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Q LD

N S W

V I C

Adelaide

Chiang

Mai

CHATREE

V I E T N A M

L A O S

Khon Kaen

Khon

A N D

Bangkok

C A M B O D I A

Q LD

BOWDENS

SILVER

Newcastle

Sydney

S A

N S W

V I C

T A S

Operations Report

Projects
Report

Nueva Esperanza
Chile

Summary

Kingsgate’s focus remains firmly on the devel-
opment of the Nueva Esperanza Project which,
subject to financing and approvals, provides
Kingsgate with a solid platform for growth
potential in Chile.

The Nueva Esperanza Project was acquired by
Kingsgate in 2012 (100% owned) through the
consolidation of tenements and resources in
2011. The Project is located in the Maricunga
Gold Belt near Copiapó, a regional mining centre
in Northern Chile. The gold and silver-rich miner-
alisation is hosted by the Esperanza
high-sulphidation epithermal alteration system
associated with the Cerros Bravos volcanic
complex.

The highly prospective Maricunga Belt in Chile
which has already delivered defined total
resources of ~100 Moz is known for its historic
bonanza silver and large scale gold production

P E R U

B O L I V I A

NUEVA
NUEVA
ESPERANZA
ESPERANZA

Chañaral
Copiapo

Santiago

A R G E N T I N A

and is further characterised by epithermal
gold styles in the north.

Kingsgate believes Nueva Esperanza is
potentially a +5 Moz gold equivalent ounce
(AuEq60)(1) system and that both Chile and
the Maricunga Belt will continue to facilitate
some outstanding discoveries and develop-
ments projects similar to those of the past
10–15 years.

Cerro Blanco

Huantajaya

Potosi

www.kingsgate.com.au

V I E T N A M

L A O S

Louang

Prabang

Vientiane

Vient

SAYABOULY
SAYABOULY

C ACHATREE
CHATREE
R
TRACHC
CHC
AAA RRREE
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EEEE
RRTTTTHHHHHH
CHATREE

T H A I L A N D

C A M B O D I A

The Project consists of three well-defined miner-
alised deposits and a number of undeveloped
exploration targets. The main deposits are
Arqueros, Chimberos and Teterita. Arqueros was
previously mined on a limited scale by under-
ground methods and Chimberos was exploited
as an open pit mine, delivering about 40 million
ounces of silver in 1998/1999. All three deposits,
together with mineralised stockpiles have a
combined Mineral Resources of approximately
113 million ounces of silver equivalent or
1.9 million ounces of gold equivalent ounces
(AuEq60).

Kingsgate has the skills to explore, build and
operate the Project and a Pre-Feasibility Study
based on optimisation of previous feasibility
studies at Nueva Esperanza was announced in
April 2016. This demonstrated that open cut
mining at two million tonnes per year and
processing by milling and agitation leaching with
cyanide is technically feasible and economically
viable at current metal prices.

Significant upsides to the Project have already
been identified which include:
〉〉

Environmental permitting already in place for
mining and processing Arqueros ore;

〉〉 Water supply is secured;
〉〉 Power options are available;
〉〉

Identified gold potential being developed
through exploration on-site and regionally;
and

〉〉

Feasibility study with updated costs remains
the next step forward, together with modifi-
cation of existing environmental approvals.

Teterita

Cimberos West

Projects Report

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Geology

The silver and gold mineralisation at Nueva
Esperanza is hosted within Tertiary-aged
flow-dome dacitic volcanic units at Arqueros and
Teterita, and in Paleozoic sediments at
Chimberos. The alteration and mineralisation are
all Miocene in age and associated with hydro-
thermal acrivity on the Cerros Bravos
paleovolcano.

Mineralisation comprises two main compo-
nents; silver-rich horizontal units termed
’mantos’ (Spanish for blanket) and a series of
near-vertical, cross-cutting gold-rich structures.
The mantos silver mineralisation is hosted by
vuggy silica within dacitic autobreccias. The
mantos occurs at Arqueros and Teterita where
the mineralising process has replaced horizontal
porous breccias. At Chimberos, silver and gold
mineralisation is hosted in vuggy silica hydro-
thermal breccias superimposed on gently folded
Paleozoic sediments. There is a close association
with dacite domes.

The vertical gold-rich mineralisation, also charac-
terised by vuggy silica, is well-developed at
Arqueros and Chimberos. It has been interpreted
as feeders for mineralising fluids. Nonetheless,
this style of mineralisation has not yet been
observed at Teterita.

Chimberos Pit

Notes:

Gold Equivalent: AuEq (g/t) = Au (g/t) + (Ag (g/t) ÷ 60). Calculated from long term historical prices of US$1,200/
ounce for gold and US$19.00 for silver and combined life of mine average metallurgical recoveries of 80% Au and
84% Ag estimated from test work by Kingsgate. It is Kingsgate’s opinion that all elements included in the metal
equivalents calculation have a reasonable potential to be recovered and sold. Although gold is not the dominant
metal, gold equivalent values are reported to allow comparison with Kingsgate’s other projects. Nueva
Esperanza silver equivalent: AgEq (g/t) = Ag (g/t) + Au (g/t) x 60.

continuedu

Nueva Esperanza – Updated Mineral Resources

Deposit

Category

Tonnes
(Million)

Au
(g/t)

Ag
(g/t)

Au Eq60
(g/t)

Au
(M oz)

Ag
(M oz)

Au Eq60
(M oz)

Ag Eq60
(M oz)

Grade

Contained Metal

14.7
3.3

18.0

1.6
3.3
0.4

5.3

3.0
0.6

3.6

–
6.2
1.7

7.9

–
9.2
2.3

Arqueros

Teterita

Indicated
Inferred

Subtotal

Measured
Indicated
Inferred

Subtotal

Chimberos
Silver

Indicated
Inferred

Chimberos
Gold

Chimberos
Total

Chimberos
Stockpile

Total

Subtotal

Measured
Indicated
Inferred

Subtotal

Measured
Indicated
Inferred

Subtotal

11.5

Measured
Indicated
Inferred

Subtotal

Measured
Indicated
Inferred

Total

–
–
4.6

4.6

1.6
27.2
10.6

39.4

0.32
0.3

0.32

0.01
0.0
0.0

0.01

0.16
0.1

0.15

–
1.17
0.9

1.11

–
0.84
0.7

0.81

–
–
0.03

0.03

0.01
0.46
0.3

0.39

76
42

93
98
65

76
66

–
51
31

–
59
40

–
–
44

93
73
43

1.59
1.0

1.48

1.56
1.64
1.1

1.58

1.43
1.2

1.39

–
2.02
1.4

1.89

–
1.83
1.4

1.73

–
–
0.8

0.8

1.56
1.67
1.0

1.48

0.15
0.03

0.18

0.0005
0.001
0.0001

0.002

0.02
0.0

0.02

–
0.23
0.05

0.28

–
0.25
0.05

0.30

–
–
0.004

0.004

0.0005
0.40
0.09

0.49

35.9
4.5

40.4

4.8
10.4
0.8

16.0

7.3
1.3

8.6

–
10.2
1.7

11.9

–
17.5
3.0

20.5

–
–
6.5

6.5

4.8
63.8
14.8

83.4

0.75
0.11

0.86

0.08
0.17
0.01

0.27

0.14
0.02

0.16

–
0.40
0.08

0.48

–
0.54
0.10

0.64

–
–
0.11

0.11

0.08
1.46
0.33

1.88

45.0
6.4

51.4

4.8
10.5
0.8

16.1

8.3
1.4

9.6

–
24.2
4.6

28.8

–
32.4
6.0

38.5

–
–
6.8

6.8

4.8
87.9
20.0

112.7

Projects Report

Resources

Upon completion of the 2015/16 exploration
program, Kingsgate provided an updated
Mineral Resource estimate for the Nueva
Esperanza Project. This includes the three
currently defined deposits and incorporates
stockpiles from previous mining at Chimberos.

At 0.5g/t gold equivalent cut-off grade, the
updated resource estimate represents a global
volume of 39.4 million tonnes containing
0.49 million ounces of gold and 83.4 million
ounces of silver, resulting in a combined gold
and silver endowment of 1.88 million gold
equivalent ounces.

www.kingsgate.com.au

Projects Report

Pre-Feasibility Study

Following the discovery and delineation of
Chimberos Gold in 2015, and a substantial
upgrade to the total Mineral Resources, Kingsgate
undertook a project optimisation study in
conjunction with Ausenco, which resulted in a
Pre-Feasibility Study of the expanded project.

The Pre-Feasibility Study was published in April
2016 and has confirmed:
〉〉 Robust economics, with an NPV5%(2) of

US$168m with an IRR of 25%;

〉〉

First 5 years production average of 135,000
ounces per annum at US$633/ounce cash
costs (AuEq60);

Initial 11.6 year Life; supported by an Ore
Reserve of 1.1 million ounces AuEq60, at a
grade of 2.0 grams per tonne AuEq60 of
oxidised mineralisation contained in three
open pits;

〉〉 Capital cost(3) estimate of US$206 million
based on a fit-for purpose approach;

〉〉

Life of mine cash costs of US$706/ounce and
All-in-costs US$913/ounce (AuEq60);
〉〉 A three-year payback period based on a
US$1,200/ounce gold price and US$19/
ounce silver price; and

〉〉 Relevant information for amendments to

existing permits, which is work in progress.

The next step is to complete the mine design
with new parameters that will lead to a cost
update which will deliver a bankable feasibility
study in the near term.

Other Key Pre-Feasibility Study Outcomes

Macro Assumption

Gold Price

Silver Price

First 5 Years

Life of Mine

US$/oz

1,200

Project and Operating Parameters

First 5 Years

Life of Mine

Investment Capital (initial)

Life of Project

Gold Produced

Silver Produced

Gold Equivalent Produced

Annual Process Rate

Mining Stripping Ratio

Gold Recovery

Silver Recovery

Annual Production Average

Cash Costs incl. Royalties

All-in-Costs (AIC)

Financial Outcomes

Free Cash Flow – Pre-Tax

Free Cash Flow – Post Tax

US$M

Year

Moz

AuEq60 Koz

Mtpa

0.206

676

(Waste to Ore)

7.7

Average %

AuEq60 Koz

AuEq60 US$/oz

US$M

135

633

840

NPV @ 5% Real

Pre-tax basis US$M

Internal Rate of Return %

Pre-tax basis %

Investment Payback Period

Years

206

11.6

0.275

1,100

6.6

706

913

Life of Mine

249

190

168

Notes (continued from page 13):

NPV5% = Net Present Value at a 5% discount rate.

Capital cost estimate as at September Quarter 2015, accuracy level is -25% to +25%.

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Projects Report

Emplacing water monitoring wells

Late season drilling at Chimberos West

www.kingsgate.com.au

Drilling for gold at Chimberos West

W A

N T

S A

CHALLENGER

Q LD

N S W

V I C

Adelaide

P E R U

B O L I V I A

NUEVA

ESPERANZA

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Chañaral

Copiapo

Santiago

A R G E N T I N A

V I E T N A M

SAYABOULY

CHATREE

C ACHATREE

TRACHC

AAA RRREE

RRTTTTHHHHHH

CHC

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L A O S

Louang

Prabang

Vientiane

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T H A I L A N D

C A M B O D I A

Projects Report

Following the sale of the 85% interest,
Kingsgate was then able to negotiate an
agreement for Silver Mines Limited to
purchase the remaining 15% interest in the
Bowdens Silver Project.

As a result Kingsgate entered into a
Deed of Variation with Silver Mines Limited
whereby:

〉〉

the acquisition price for the 100%
purchase of the Bowdens Silver Project
was varied to A$25 million;

〉〉 Silver Mines Limited now owns 100%

of the Bowdens Silver Project;
〉〉 Silver Mines Limited was to pay the

〉〉

balance of A$5 million by 30 September
2016, or such other date as may be
agreed; and

should Silver Mines Limited not pay
the final balance of A$5 million by 30
September 2016, the parties would form
an unincorporated Joint Venture as
originally contemplated under the
Agreement.

Subsequent to year-end, by way of an
amendment to the Deed of Variation, both
Kingsgate and Silver Mines Limited have now
agreed to the following terms:

〉〉 Kingsgate received a non-refundable

payment of A$1 million on 30 September
2016. The residual amount of $4 million
plus interest calculated at 10% per annum
is to be paid on or prior to 30 December
2016; and

〉〉

should Silver Mines Limited not pay
the final amount of A$4 million by
30 December 2016, the parties will
form an unincorporated 85% – 15%
Joint Venture with Kingsgate retaining
15% as contemplated under the original
Agreement.

Chiang

Mai

CHATREE

V I E T N A M

L A O S

Khon Kaen

Khon

A N D

Bangkok

C A M B O D I A

Projects
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S A

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BOWDENS
BOWDENS
SILVER
SILVER

Newcastle

Sydney

V I C

T A S

The $20 million was paid in three instalments:
〉〉 A$200,000 was paid by way of a

non-refundable deposit in February 2016;

〉〉

a further A$1.8 million was paid in March
2016 at the successful completion of the
due diligence period; and

the remaining A$18 million was paid in June
2016, which successfully completed the deal.

Bowdens
Silver Project
NSW, Australia

Summary

The Bowdens Silver Project is located in the Lue/
Rylstone area of central western NSW.
Kingsgate acquired the project from Silver
Standard Resources in 2011.

Silver mineralisation was discovered at Bowdens
in the mid 1980’s, and both local and regionally
focused geophysical and geochemical explo-
ration has been undertaken in various forms
since that time.

While Kingsgate has made significant progress
towards the completion of a Definitive Feasi-
bility Study and the Environmental Impact
Statement for Bowdens, the decision was taken
in February 2016 to sell the project to Silver
Investment Holdings Australia, which in turn
became Silver Mines Limited.

The rationale to sell Bowdens was simple, as it is
a key plank in the strategy to reposition
Kingsgate by reinvesting these proceeds into the
more advanced 100% owned Nueva Esperanza
Project in Chile to help realise its future
potential.

The details of the sale of Bowdens to Silver
Mines Limited are as follows:

Kingsgate has received a total payment of A$20
million cash for an initial 85% interest in the
project.

18
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Exploration Report

Exploration
Report

Overview

Given the current situation in Thailand, and the
sale of both the Challenger Gold Mine and
Bowdens Silver Project, Kingsgate has effectively
suspended any further ‘greenfields’ exploration
in Australia and South East Asia. There is a
strong focus instead on ‘brownfields’ exploration
in and around the exciting Nueva Esperanza
Project in Chile. Kingsgate intends to conduct
business development opportunities in Chile and
South America more broadly to opportunistically
build our portfolio.

Brownfields Exploration
Nueva Esperanza

The FY16 exploration strategy was to step back
and evaluate the Nueva Esperanza district with a
systematic approach. This approach involved
compiling various datasets and building detailed
layers of geological information to generate new
drill targets.

Blast Hole Drill Program
A district scale shallow drill program was
completed with two blast hole rigs. A total
of 3,332m was drilled across 485 drill holes
with a total of 527 samples (including control
samples) collected. Drilling was completed in
18 consecutive days from the end of February
through until mid-March.

The drill program was designed to explore
for new targets under post-mineral cover
comprising of scree and colluvium. The targets
are based on multi-element geochemical and
geological vectors in combination with surface
lithological and structural mapping.

The approximate grid spacing for this program
was 250 x 250m, however this was tightened in
areas near the boundaries of known deposits,
in intradome areas, and other areas considered
prospective.

Numerous gold and silver anomalies were
generated by the program including the
Carachitas valley, Carachapampa; and the area
influenced by the Grandote fault (Arqueros
– Chimberos – Huantajaya). All targets will be
systematically followed up and explored in FY17.

www.kingsgate.com.au

19
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Exploration Report

Carachitas Prospect – 2015 RC Drilling Intersection Summary (>0 .5g/t Au)

Collar Co-ordinates (PSAD 56 19S)

Interval

Drill Hole

Depth
(m)

East
(m)

North
(m)

Elevation
(m)

From
(m)

ECCR-01

76.00

484,166

7,050,363

4,017

ECCR-02

67.00

484,119

7,050,346

4,024

ECCR-03

67.00

484,119

7,050,346

4,024

ECCR-04

67.00

484,213

7,050,380

4,008

ECCR-05

57.00

484,213

7,050,380

4,008

SCON-06

200.00

484,166

7,050,363

4,017

To
(m)

Width
(m)

Au
g/t)

Ag
(g/t)

Observation

1.48

2.3

1.91

1.5

1.24

1.38

0.86

2.93

Including 3m@3.17g/t Au,
33g/t Ag from 20m.

Including 3m@9.79g/t Au,
70g/t Ag from 14m and
3m@5.22 Au, 28g/t Ag from 19m.

Including 3m@4.50g/t Au,
89g/t Ag from 14m.

Including 4m@2.12g/t Au,
41g/t Ag from 22m.

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Including 5m@4.25g/t Au,
32g/t Ag from 20m.

Drilling
Carachitas:

Strong assay results were received from a reverse
circulation drill program on the Carachitas
target. Significant gold intersections were
received from the target which is approximately
two kilometres of the proposed plant site.

A total of six holes were drilled on three section
lines at 50 metre intervals following up from a
single hole drilled previously which also inter-
sected gold mineralisation.

The best of the Carachitas drill intercepts was:
11 metres at 4.90g/t gold from 14 metres in
ECCR-02.

All six holes returned significant gold intersec-
tions from shallow depths less than 20 metres
below surface and are summarised in the table
above.

Encouraging assay results for holes ECCR-02,
03 and 04 show that the Carachitas minerali-
sation remains open at depth and has not been
closed off laterally to the east or west. Further
exploration of the Carachitas target will
continue in FY17.

Targets 69 & 70:

Field mapping identified two new anomalies
occurring at dome margins in favourable
geological settings analogous with other discov-
eries in the district such as Kinross’s Pompeya
deposit and Goldfield’s Salares Norte.

Four reverse circulation holes were drilled on
geological targets 69 and 70 west of the
Chimberos Gold Zone prior to the winter
shutdown in May.

The four holes totalled 945 metres and tested
zones of vuggy quartz outcropping adjacent to
dacitic domes. Excessive groundwater prevented
the holes from reaching the target depths
however, Hole T70-003 did intercept a zone of
silicification at the very bottom of the hole. The
bottom of the hole returned 5 metres grading
2.14g/t AuEq(1) from 250 to 255 metres.

Kingsgate is encouraged that the zone was
intercepted at the top of the target zone as
modelled which confirms “proof of concept” and
it is planned to re-enter and extend the hole with
a diamond drill rig in the Chilean springtime
(September–November).

Surface Sampling
A campaign of surface sampling followed-up
several new target areas in the vicinity of dacitic
dome-like bodies.

One of the target areas East of Cerro Gaston
returned several highly anomalous boulder float
samples. The float samples returned maximum
values of 366 and 251g/t silver from samples of
vuggy quartz located in a small drainage below
the new target area. The target will be investi-
gated as a priority in the Chilean springtime.

Work continues on project-wide baseline
geochemistry and geological mapping. An
additional development is the recognition of
high sulphidation epithermal alteration west of
Carachitas which was previously designated as a
gold-copper porphyry zone.

Notes:

1. Gold Equivalent: AuEq(g/t) = Au(g/t) + (Ag(g/t) ÷ 60).

Baseline Data
A new topographic base map and high resolution
satellite image were commissioned for the
Nueva Esperanza Project. The map and image
will be used for general development and explo-
ration activities to help build layers of geological
information at a district level to unlock the
prospective 50 km2 alteration footprint.

Regional Exploration, Chile

A desktop review of concession-free areas in the
Maricunga belt was initiated. The northern part
of the belt is emerging as a relatively underex-
plored area that contains a number of significant
precious metal deposits including Gold Field’s
Salares Norte Project.

The area was investigated by compiling various
geological data in conjunction with updated
claim information. Areas of high-level epithermal
alteration were investigated and applications
were made for numerous concessions which are
being processed by the Chilean authorities.
Ground truthing of these new projects will be
initiated in the spring field season.

Forward Program, Chile

Kingsgate remains committed to progressing
exploration, feasibility studies and permitting
aspects into FY17.

Follow up will continue on the various targets
already identified and focus on building a target
pipeline at Nueva Esperanza and elsewhere in
Chile. A highly experienced technical team has
been put in place to commence work in the
Chilean springtime.

Ore Reserves and Mineral Resources

as at 30 June 2016

Chatree and Nueva Esperanza Ore Reserves

Grade

Contained Metal

Source

Chatree

Nueva Esperanza

Total

Category

Proved

Probable

Total

Proved

Probable

Total

Proved

Probable

Total

Tonnes
(Million)

Gold
(g/t)

Silver
(g/t)

Au Equiv
(g/t)

Ag Equiv
(g/t)

Gold
(M oz)

Silver
(M oz)

Au Equiv
(M oz)

Ag Equiv
(M oz)

2.1

0.4

2.5

–

17.1

2.1

17.5

19.6

1.15

1.07

1.14

–

0.5

1.15

0.5

0.6

17.7

17.2

17.6

–

17.7

1.28

1.20

1.27

–

2.0

1.28

1.9

174

163

172

–

117

174

118

124

0.08

0.01

0.09

–

0.30

0.08

0.31

0.39

1.20

0.22

1.42

–

47.8

1.20

48.1

49.2

0.09

0.02

0.10

–

1.10

0.09

1.12

1.20

11.8

2.1

13.8

–

64.3

11.8

66.4

78.2

Chatree and Nueva Esperanza Mineral Resources (inclusive of Ore Reserves)

Source

Chatree

Nueva Esperanza

Total

Category

Measured

Indicated

Inferred

Total

Measured

Indicated

Inferred

Total

Measured

Indicated

Inferred

Grade

Contained Metal

Tonnes
(Million)

Gold
(g/t)

Silver
(g/t)

Au Equiv
(g/t)

Ag Equiv
(g/t)

Gold
(M oz)

Silver
(M oz)

Au Equiv
(M oz)

Ag Equiv
(M oz)

75.8

49.8

40.6

166.2

1.6

27.2

10.6

39.4

77.4

77.0

51.2

0.71

0.64

0.59

0.66

0.01

0.46

0.3

0.39

0.70

0.58

0.53

0.61

6.77

5.58

4.50

5.86

8.55

29.4

12.5

17.3

0.76

0.68

0.62

0.70

1.56

1.67

1.0

1.48

0.78

1.03

0.70

0.85

103

100

103

1.73

1.02

0.77

3.53

0.0005

0.40

0.09

0.49

1.73

1.42

0.86

4.02

16.5

8.9

5.9

31.3

4.8

63.8

14.8

83.4

21.3

72.7

20.7

114.7

1.85

1.09

0.81

3.76

0.08

1.46

0.33

1.88

1.93

2.55

1.14

5.63

252

148

111

511

4.8

87.9

20.0

112.7

257

236

131

623

Total

205.6

www.kingsgate.com.au

www.kingsgate.com.au21

Ore Reserves and Mineral Resources

Notes to the Ore Reserves and Mineral Resources Tables on page 20:
(1)

Rounding of figures causes some numbers to not add correctly.

(2)

(3)

Nueva Esperanza Equivalent factors:
Silver Equivalent: AgEq (g/t) = Ag (g/t) + Au (g/t) x 60.
Gold Equivalent: AuEq (g/t) = Au (g/t) + Ag (g/t) / 60.
Calculated from prices of US$1200/oz Au and US$19.00/oz Ag, and metallurgical
recoveries of 80% Au and 84% Ag estimated from test work by Kingsgate.

Chatree Equivalent factors:
Gold Equivalent: AuEq/t = Au (g/t) + Ag (g/t) /136.
Silver Equivalent: AgEq g/t = Au (g/t) x 136 + Ag g/t.
Calculated from prices of US$1200/oz Au and US$19.00/oz Ag and metallurgical
recoveries of 83.3% Au and 38.7% Ag based on metallurgical testwork and plant
performance.

(4)

(5)

Cut-off grades for Resources are:
Chatree 0.30 g/t Au, Nueva Esperanza 0.5g/t AuEq.

Nueva Esperanza Reserves are based on a floating cut-off grade method. In this method
each Resource block is subjected to a series of calculations to generate revenue and cost
fields that are used to determine a breakeven cut-off grade.

(6) Cut-off grades for Chatree Reserves are 0.35 g/t Au.

(7)

(8)

It is in the Company’s opinion that all the elements included in the metal equivalent
calculations have a reasonable potential to be recovered.

As at the date of reporting - 7 October 2016, the Bowdens Silver Project is 100% owned
by Silver Mines Limited (ASX:SVL). Please refer to the ASX:KCN release titled “Update on
the sale of the Bowdens Silver Project” dated 30 September 2016, for more information.

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Chatree Ore Reserves (with a Metallurgical Licence beyond 31 December 2016)
The table below shows what the Chatree Reserve would be if the Metallurgical Licence was granted in the future.

Grade

Contained Metal

Source

Chatree

Category

Proved

Probable

Total

Tonnes
(Million)

28.7

9.3

38.0

Gold
(g/t)

0.81

0.80

0.81

Silver
(g/t)

Au Equiv
(g/t)

Ag Equiv
(g/t)

Gold
(M oz)

Silver
(M oz)

Au Equiv
(M oz)

Ag Equiv
(M oz)

8.76

7.04

8.34

0.87

0.85

0.87

119

116

118

0.75

0.24

0.99

8.1

2.1

10.2

0.81

0.25

1.06

110

34.6

144.0

Notes to the Ore Reserves and Mineral Resources Table above:
(1)

For the material in the table above to become a JORC 2012 Reserve, the Thai Department
of Primary Industries and Mines would need to grant the Chatree Metallurgical Licence for
a 5 year period.

(2)

The information in the table above is not currently a reserve.

Competent Persons Statement

The information relating to Nueva Esperanza Ore
Reserves is extracted from an ASX announcement
by Kingsgate titled “Nueva Esperanza Pre-Feasibility
Study” dated 14 April 2016. The information relating
to Nueva Esperanza Mineral Resources is extracted
from an ASX announcement by Kingsgate titled
“Nueva Esperanza Mineral Resource Update” dated
14 April 2016.

Previous announcements referred to in this report
are available to view on Kingsgate’s public website
(www.kingsgate.com.au). The Company confirms
that it is not aware of any new information or data
that materially affects the information included in
the original market announcement, and in the case of
estimates of Mineral Resources or Ore Reserves that
all material assumptions and technical parameters
underpinning the estimates in the relevant market
announcements continue to apply and have not
materially changed. The Company confirms that the
form and context in which the Competent Person’s

findings are presented have not been materially altered
from the original announcements.

The information in this report that relates to Chatree
Exploration Results and Mineral Resources is based
on information compiled by Ron James and Maria
Munoz, who were previously employees of the
Kingsgate Group. Both Ron James and Maria Munoz
who are now consultant geologists, are members of
The Australasian Institute of Mining and Metallurgy
and qualify as Competent Persons. Mr James and Ms
Munoz have sufficient experience that is relevant to
the style of mineralisation and type of deposit under
consideration and to the activity being undertaken to
qualify as a Competent Person as defined in the 2012
Edition of the “Australasian Code for Reporting of
Mineral Resources and Ore Reserves”. Mr James and Ms
Munoz have consented to the public reporting of these
statements and the inclusion of the material in the
form and context in which it appears.

The information in this report that relates to the
Chatree Ore Reserve estimates is based on information
compiled by Jennifer McNee who was formerly a full
time employee and is now a consultant geologist to
Akara Resources, and who is under the supervision
of Rob Kinnaird, who is a member of the Australasian
Institute of Mining and Metallurgy. Mr Kinnaird is
a full time employee of the Kingsgate Group and
has sufficient relevant experience in the style of
mineralisation and type of deposit under consideration
to qualify as a Competent Person as defined in the
2012 Edition of the “Australasian Code for Reporting
of Mineral Resources and Ore Reserves”. Mr Kinnaird
has consented to the public reporting of these state-
ments and the inclusion of the material in the form and
context in which it appears.

Senior Management

Senior
Management

Kingsgate’s executives have a comprehensive range of skills and experience including mine development and operations, exploration, finance and administration.
They are supported by highly qualified specialists, whose backgrounds cover the full scope of mining resources activities.

Senior members of Kingsgate’s management team as at the time of this report are:

Greg Foulis
BAppSc (Hons), MComm, (Finance)

Ross Coyle
BA, FCPA, FGIA

Alistair Waddell
BSc (Hons), MAusIMM

Chief Executive Officer
Greg Foulis joined Kingsgate in June 2015 as
Chief Executive Officer and has over 30 years of
diverse international experience in mining and
financial markets. Prior to Kingsgate, he was
SVP Business Development for AngloGold
Ashanti where he was involved in identifying and
delivering opportunities for growth and
improvement from both an organic and external
perspective. Greg has spent over seventeen
years in financial markets in various roles
including mining equity research, mining and
energy specialist sales and funds management,
principally with Deutsche Bank. Greg is a
qualified geologist with extensive experience in
exploration, project evaluation and mining
operations in Australasia and the Americas. This
includes a career highlight with involvement in
the exploration, drill-out and feasibility of the
giant world class Lihir Gold Project in PNG.

Chief Financial Officer and
Company Secretary
Ross Coyle joined Kingsgate in March 2011
following the Company’s acquisition of Dominion
Mining Limited and was with the Dominion
group for over 25 years. He is a qualified
accountant and has over 33 years’ experience in
finance and accounting within the resource
industry. He was Finance Director of Dominion
from 1996. Ross was appointed Kingsgate’s
Chief Financial Officer in November 2014.

Vice-President
Corporate Development & Exploration
Alistair Waddell joined Kingsgate in April 2016
as Vice-President Corporate Development &
Exploration. He is a Geologist with over 20 years
of diverse resource industry experience,
including senior roles with both junior and senior
mining companies providing a broad vision of
many aspects of the business. He was a founder
and former President & CEO of TSX-V listed
GoldQuest Mining Corp. principally focused on
exploration in the Dominican Republic. Most
recently, he was Vice President - Greenfields
Exploration for Kinross Gold Corp. responsible
for all global Greenfields exploration.

Alistair brings with him excellent experience and
a broad knowledge of Latin America and is a key
driver of the Nueva Esperanza Project.

www.kingsgate.com.au

Directors’ Report

for the year ended 30 June 2016

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Directors’ Report . . . . . . . . . . . . . . . . . 24

Remuneration Report . . . . . . . . . . . . . 31

Auditor’s Independence Declaration . . . . . . . . . . 48

Corporate Governance Statement
Kingsgate Consolidated Limited is committed to ensuring that its
policies and practices reflect the highest standard of corporate
governance.

The Board has adopted a comprehensive framework of Corporate
Governance Guidelines which can viewed at www.kingsgate.com.au/
corporate-governance

Directors' Report

Directors’
Report

Your Directors’ present their
report on the Group consisting of
Kingsgate Consolidated Limited
and the entities it controlled at
the end of, or during the year
ended 30 June 2016.

Directors

The following persons were directors of
Kingsgate Consolidated Limited during the
whole of the financial year and up to the date
of this report.

〉〉 Ross Smyth-Kirk
〉〉 Peter Alexander
〉〉 Peter McAleer*
〉〉 Sharon Skeggs
〉〉 Peter Warren

Chairman

Non-Executive Director

* granted leave of absence from February 2016 due

to ill health

Principal activities

The principal activities of Kingsgate Consolidated
Limited are mining and mineral exploration in
Australia, South East Asia and South America.

Dividends
〉〉 No final dividend was declared for the year
ended 30 June 2015 (30 June 2014: nil).

〉〉 No interim dividend was declared for the year

ended 30 June 2016 (30 June 2015: nil).

Review of operations
and results

Operational performance
Kingsgate is a gold and silver mining, devel-
opment and exploration company based in
Sydney, Australia. Kingsgate owns and operates
the Chatree Gold Mine in Thailand. In addition,
the Company has an advanced development
project; the Nueva Esperanza Gold/Silver
Project, in the highly prospective Maricunga
Gold/Silver Belt in Chile.

Group gold production for the year was 146,502
ounces with Chatree contributing 97,510 ounces
and Challenger 48,992 ounces.

Kingsgate suffered a major setback during the
year when the Thai Government announced on
10 May 2016, that the Chatree Gold Mine must
cease operations by 31 December 2016. In effect,
the Thai Government’s actions or lack of action
over the past 12 months, and their inability to
articulate a valid reason for the decision has now
irrevocably damaged Kingsgate and its Thai
subsidiary Akara Resources Public Company
Limited’s (“Akara”), business and reputations.

Since the initial closure announcement in May,
the Thai Government has also rescinded the
original Cabinet resolution to close the mine and
via a new Cabinet resolution empowered the
Thai Industry Minister and other key government
officials to oversee the closure of the mine by
the end of the year.

The Thai Government has expressed that the
closure is in no way a reflection of the way the
mine is operated which validates Kingsgate’s view
that the mine is and always has been a socially
responsible, internationally accredited mining
operation employing modern techniques. Chatree
continues to comply with stringent health and
environmental laws, and is one of the most
heavily regulated mining operations in the world.

A great deal of uncertainty still remains in how
Akara might continue to operate the mine until
the end of the year, as the Thai Department of
Primary Industries and Mines has issued various

instructions in the wake of the 10 May decision
only to revoke some less than a month later.

The Thai Industry Minister Atchaka Sibunruang,
on 18 August 2016, once again told the media
that governmental committees set up in
October 2015 to investigate alleged health and
environmental issues around the mine have
found that there have been no problems caused
by the mine. However, the Committee will not
conclude its findings until the end of the year.

The Industry Ministry went on to say that the
Cabinet’s 10 May 2016 resolution to shut down
Akara was cancelled because the resolution did
not comply with Thai law, and was further
explained by saying the 10 May resolution could
put the Cabinet at risk of legal action by Akara
as cancelling a concession that has already been
approved and still remains valid does in fact
break the law.

Akara has however, in light of this ongoing
uncertainty, implemented a revised mine plan up
until 31 December 2016 that is expected to
generate sufficient cash flow to cover all of
Akara’s liabilities and obligations.

While Kingsgate is extremely disappointed with
the situation it now finds itself in, the Company
continues to vigorously pursue a range of
potential remedies for the situation, which
include both legal and diplomatic options.

Both the Kingsgate Board and Management are
seeking compensation on behalf of shareholders
for the material impact of the Thai Government’s
decision, and as noted previously, it is appro-
priate that Kingsgate’s shares remain voluntarily
suspended while these options are being
pursued.

Kingsgate also appreciates that while the
voluntary suspension may be frustrating for
some shareholders, it is necessary to protect
against volatility created by this uncertainty.

In other Thai specific matters, Kingsgate also
sought clarification from the Thai Securities and
Exchange Commission (“SEC”), with respect to
the SEC’s announcement on 2 October 2015, in
relation to the status of the Initial Public

Directors’ Reportwww.kingsgate.com.au25

Offering (“IPO”) of Akara. The SEC suggested
that they had rejected the IPO application. As far
as Kingsgate was aware, the IPO application was
still under consideration by the SEC. The Board
of Kingsgate was in any event, as a result of
market conditions at the time, considering
making an application to the SEC for deferral of
the IPO. Akara submitted an application to the
SEC to defer the IPO in October 2015.

Given the events of 10 May 2016, and the Thai
Government’s decision to close the Chatree
Gold Mine prematurely, there will be no further
consideration given to the IPO.

The National Anti-Corruption Commission
(“NACC”) of Thailand contacted Akara
Resources in November 2015 to inquire into
facts and gather evidence in respect of allega-
tions made against a number of parties,
including Kingsgate and Akara Resources.

Kingsgate and Akara Resources are unaware of
the details of the allegations, nor are they aware
of any matters that would justify such an
inquiry. Kingsgate has not been formally
contacted to date. The NACC Committee
established to oversee the matter has been
reconstituted and a new Chairperson has been
appointed, but there has been no further
activity to date.

Kingsgate’s other operating asset, the Challenger
Gold Mine, made a solid contribution to group
production for the year before its sale to WPG/
Diversified Minerals Pty Ltd in March 2016.

Challenger contributed 48,992 ounces at a total
cash cost of US$763 per ounce, with under-
ground mining ceasing in December 2015, and
the remaining ore being sourced from the SEZ
open pit.

Kingsgate’s after tax loss of $229.5 million
for the year is primarily due to a non-cash
impairment charge of $227.6 million against
the carrying value of the Chatree Gold Mine.

As at 30 June 2016, the Group’s current liabilities
exceeded its current assets by $36,855,000.
This was largely a result of the reclassification
of the external borrowings of Akara as current

liabilities due to the Thai Government’s decision
that the Chatree Gold Mine must cease
operation by 31 December 2016. As a result of
this matter the independent auditor’s report
refers to a material uncertainty regarding
continuation of the Group as a going concern.
A plan has been implemented to enable the
Group to continue as a going concern. For
further information refer to the going concern
disclosure in Note 1 of the financial statements
together with the auditor’s report.

Chatree
Notwithstanding the current situation in Thailand
with the Chatree Gold Mine, it remained Kings-
gate’s primary production asset for the year,
producing 97,510 ounces of gold and 675,579
ounces of silver. The process plant treated 5.5
million tonnes at a head grade of 0.70 grams per
tonne gold with a recovery of 79.8%.

The main operational and processing issues over
the course of the year at Chatree resulted from a
combination of harder than scheduled ore from
the stockpiles, and extended periods of reduced
truck and excavator availability.

At year end, 6.74 million tonnes of ore was
stockpiled with an average contained gold grade
of 0.44g/t representing 95,340 ounces of gold.

Nueva Esperanza Gold/Silver Project
Kingsgate’s focus remained firmly on the devel-
opment of the impressive Nueva Esperanza
Project throughout the year, which has the
potential to provide Kingsgate with a solid
platform for growth in Chile and other strategic
areas of South America.

The Optimisation Study blending historical
elements of the project was completed to a
Pre-Feasibility level in conjunction with Ausenco
during the year and released in April 2016. The
Pre-Feasibility Study has confirmed:
〉〉

First 5 years production average of 135 Koz/
pa at US$633/oz cash costs (AuEq601);

〉〉

Initial 11.6 year life; supported by an Ore
Reserve of 1.1 million ounces AuEq60, at a
grade of 2.0 grams per tonne AuEq60 of
oxidised mineralisation contained in three
open pits; and

〉〉

Life of mine cash costs of US$706/oz and
All-in-costs US$913/oz (AuEq60).

Notably, the Pre-Feasibility Study was published
using gold and silver prices lower than the
current spot price, and the project continues to
generate industry and market interest.

There was also a strong emphasis on developing
a systematic regional approach to exploration at
Nueva Esperanza during the year, with the aim
of building detailed layers of geological infor-
mation to generate new drill targets.

To that end, a regional drilling program to
ascertain basement geochemistry was
completed in March 2016, which saw a total of
3,332 metres drilled across 485 holes that
generated 527 samples. Further RC drilling was
undertaken in May, and US$3 million has been
committed to further drilling of target areas
commencing in the Chilean spring field season.

Notes:

1 Gold Equivalent:

AuEq (g/t) = Au (g/t) + Ag (g/t) ÷ 60.
Calculated from long term historical prices of
US$1,200/oz for gold and US$19.00 for silver and
combined life of mine average metallurgical recov-
eries of 80% Au and 84% Ag estimated from test
work by Kingsgate. It is Kingsgate’s opinion that all
elements included in the metal equivalents calcu-
lation have a reasonable potential to be recovered
and sold. Although gold is not the dominant metal,
gold equivalent values are reported to allow
comparison with Kingsgate’s other projects. Nueva
Esperanza silver equivalent:
AgEq (g/t) = Ag (g/t) + Au (g/t) x 60.

continuedu

Directors’ ReportDirectors' Report26

Challenger
On 30 October 2015, Kingsgate announced an
Option Agreement was reached with a 50/50
Joint Venture between Diversified Minerals Pty
Ltd and WPG Resources Limited (“Purchasers”),
whereby the Purchasers would acquire 100% of
the Challenger Gold Mine and certain explo-
ration licences for a consideration of $1 million
and a $25 per ounce revenue royalty on future
production in excess of 30,000 ounces from the

Challenger SSW Zone. The Option Agreement
was exercised on 11 December 2015. A Share
Purchase Agreement was executed on 19
February 2016, and the sale was completed on
15 March 2016.

Bowdens Silver Project
On 25 February 2016, Kingsgate announced a
Share Purchase Agreement was entered into to
sell an 85% interest in the Bowdens Silver Project

for a cash consideration of $20 million to Silver
Investment Holdings Australia Limited (“SIHA”).
This arrangement was subsequently varied with
SIHA agreeing to purchase 100% of the project
for a total consideration of $25 million. On 29
June 2016, the Company completed the sale of
the project. At that date $5 million of the consid-
eration was outstanding and is due to be paid by
30 September. If this is not paid by the due date
the Company will retain 15% of the project and
revert to an unincorporated Joint Venture.

Financial results

Net (loss)/profit after tax ($’000)

(229,451)

(147,643)

(97,613)

(327,067)

75,006

EBITDA ($’000)

39,864

69,458

64,207

96,424

166,732

2016

2015

2014

2013

2012

Dividends paid (Cash & DRP) ($’000)

Share price 30 June ($)

Basic (loss) earnings per share (Cents)

Diluted (loss) earnings per share (Cents)

* Shares have been suspended since 13 May 2016.

EBITDA before significant items

–

*0.41

(102.6)

–

0.70

(66.0)

–

0.86

(56.7)

22,739

22,026

1.27

(215.0)

4.85

52.5

The pre-tax loss for the Group before significant items was $18.4 million down from a profit of $1.2 million in the previous year.

EBITDA before significant items was $39.9 million (2015: $69.5 million).

Significant items are detailed below.

Loss after income tax

Income tax expense

Loss before income tax

Significant items
Impairment of Chatree Gold Mine

Impairment reversal of Challenger Gold Mine

Impairment (reversal)/impairment of Bowdens Silver Project

Impairment of capitalised exploration

Loss/profit before tax and significant items

Net finance costs

Depreciation and amortisation

EBITDA before significant items

2016
$’000

2015
$’000

(229,451)

(147,643)

651

(229,411)

(146,992)

227,564

(411)

(16,645)

461

(18,442)

12,129

46,177

39,864

115,650

–

22,643

9,888

1,189

14,319

53,950

69,458

Directors’ Reportwww.kingsgate.com.au
Depreciation and amortisation
The decrease in depreciation and amortisation
to $46.2 million is mainly a result of lower
production at Chatree and the impact of the
2015 asset impairment against the project
which resulted in a reduction in the carrying
value of depreciable assets.

Cash flow
Net operating cash inflow was $46.5 million
(2015: $76.6 million). The decrease of $30.1
million reflects a decrease in gold and silver sales
offset by a decrease in mining costs and lower
interest payments, due to the reduction in
borrowings over the year. Net investing cash
outflow was $17.1 million (2015: $40.3 million),
down $23.2 million, representing continued
project feasibility exploration work at the Nueva
Esperanza Gold/Silver Project and completion of
Tailings Storage Facility #2 – Stage 5 at Chatree
offset by proceeds of $20 million from the sale
of the Bowdens Silver Project. Net cash outflow
from financing activities was $48.6 million
(2015: $37.7 million), including repayment of
$47.5 million of the multi-currency loan facility
and revolving credit facility.

EBITDA before significant items is a financial
measure which is not prescribed by International
Financial Reporting Standards (“IFRS”) and
represents the profit under IFRS adjusted for
specific significant items. The table above
summarises key items between statutory loss
after tax and EBITDA before significant items.
The EBITDA before significant items has not
been subject to any specific auditor review
procedures by our auditor but has been
extracted from the accompanying audited
financial statements.

Revenue
Total sales revenue for the Group was $253.3
million for the year, down from $313.2 million in
the previous year. Gold revenue decreased by
19% to $238.9 million and silver revenue
decreased by 14% to $14.5 million.

The decrease in gold and silver revenue reflects
mining fleet availability issues, delayed access to
higher grade ore and lower gold and silver prices.

The average US dollar gold price received was
US$1,135 per ounce (2015: US$1,208 per
ounce). The average silver price received was
US$15 per ounce (2015: US$17 per ounce).

Costs
The overall decrease in cost of sales to $242.2
million (including royalties, depreciation and
amortisation) reflects decreased mining
production from the Chatree Mine, due primarily
to mining fleet availability issues, and decreased
depreciation due to lower gold production.

Total cash costs per ounce

Group

Chatree

Challenger

2016
US$/oz

851

895

763

2015
US$/oz

Movement in unit cost
US$/oz

833

690

1,059

205

(296)

Material business risks

The Group uses a range of assumptions and
forecasts in determining estimates of production
and financial performance. There is uncertainty
associated with these assumptions that could
result in actual performance differing from
expected outcomes.

The material business risks that may have an
impact on the operating and financial prospects
of the Group are:

Revenue
Revenue, and hence operating margins, are
exposed to fluctuations in the gold price and to
a degree in the silver price including foreign
currency rate movement affecting US dollar
denominated metal prices. Management contin-
ually monitors operating margins and responds
to changes to commodity prices as necessary to
address this risk, including reviewing mine plans
and entering into forward gold sale contracts.

Changes in the gold and silver price also impact
assessments of the feasibility of exploration and
the Group’s development project, Nueva
Esperanza.

Mineral resources and ore reserves
Ore reserves and mineral resources are
estimates. These estimates are substantially
based on interpretations of geological data
obtained from drill holes and other sampling
techniques. Actual mineralisation or geological
conditions may be different from those
predicted and as a consequence there is a risk
that any part, or all of the mineral resources, will
not be converted into reserves.

Market price fluctuations of gold and silver as
well as increased production and capital costs,
may render ore reserves unprofitable to develop
at a particular site for periods of time.

Replacement of depleted reserves
The Group aims to continually replace reserves
depleted by production to maintain production
levels over the long term. Reserves can be
replaced by expanding known ore bodies,
locating new deposits or making acquisitions.

As a result, there is a risk that depletion of
reserves will not be offset by discoveries or
acquisitions. The mineral base may decline if
reserves are mined without adequate
replacement and, as a consequence, the Group
may not be able to sustain production beyond
the current mine lives based on current
production rates.

continuedu

Directors’ ReportDirectors' Report
28

Mining risks and insurance risks
The mining industry is subject to significant
risks and hazards, including environmental
hazards, industrial accidents, unusual or
unexpected geological conditions, unavailability
of materials and unplanned equipment failures.
These risks and hazards could result in signif-
icant costs or delays that could have a material
adverse impact on the Group’s financial perfor-
mance and position.

The Group maintains insurance to cover some
of these risks and hazards at levels that are
believed to be appropriate for the circumstances
surrounding each identified risk. However, there
remains the possibility that the level of
insurance may not provide sufficient coverage
for losses related to specific loss events.

Reliance on contractors
Some aspects of Kingsgate’s production, devel-
opment and exploration activities are conducted
by contractors. As a result, the Group’s business,
operating and financial performance and results
are impacted upon by the availability and perfor-
mance of contractors and the associated risks.

Production and cost estimates
The Group prepares estimates of future
production, cash costs and capital costs of
production for each operation, though there is
a risk that such estimates will not be achieved.
Failure to achieve production or cost estimates
could have an adverse impact of future cash
flows, profitability, results of operations and
financial position.

Refinancing risk
In addition to cash flows from operating activ-
ities, Kingsgate has debt facilities in place with
external financiers. Although the Group
currently generates sufficient funds to service
its debt requirements, no assurance can be
given that Kingsgate will be able to meet its
financial covenants when required or be able
to refinance the debt prior to its expiry on
acceptable terms to the Company. If Kingsgate
is unable to meet its financial covenants when
required or refinance its external debt on
acceptable terms to the Company, its financial
condition and ability to continue operating may
be adversely affected.

Maintaining title
The Group’s production, development and
exploration activities are subject to obtaining
and maintaining the necessary titles, authorisa-
tions, permits and licences, and associated land
access arrangements with the local community,
which authorise those activities under the
relevant law (“Authorisations”). There can be no
guarantee that the Group will be able to
successfully obtain and maintain relevant
Authorisations to support its activities, or that
renewal of existing Authorisations will be
granted in a timely manner or on terms
acceptable to the Group.

Authorisations held by or granted to the Group
may also be subject to challenge by third parties
which, if successful, could impact on Kingsgate’s
exploration, development and/or mining
activities.

Political, economic, social and
security risks
Kingsgate’s production, development and explo-
ration activities are subject to the political,
economic, social and other risks and uncertainties
in the jurisdictions in which those activities are
undertaken. Such risks are unpredictable and
have become more prevalent in recent years. In
particular, in recent years there has been an
increasing social and political focus on:
〉〉

the revenue derived by governments and
other stakeholders from mining activities;
and

〉〉

resource nationalism, greater limits on
foreign ownership of mining or exploration
interests and/or forced divestiture (with or
without adequate compensation), and broad
reform agenda in relation to mining legis-
lation, environmental stewardship and local
business opportunities and employment.

As evidenced by the decision by the Thai
Government that the Chatree Gold Mine must
cease operation by 31 December 2016 there can
be no certainty as to what changes, if any, will
be made to relevant laws in the jurisdictions
where the Company has current interests, or
other jurisdictions where the Company may
have interest in the future, or the impact that
relevant changes may have on Kingsgate’s ability
to own and operate its mining and related
interests and to otherwise conduct its business
in those jurisdictions.

Environmental, health and
safety regulations
The Group’s mining and processing operations
and exploration activities are subject to
extensive laws and regulations. Delays in
obtaining, or failure to obtain government
permits and approvals may adversely affect
operations, including the ability to continue
operations.

Community relations
The Group has established community relations
functions that have developed a community
engagement framework, including a set of
principles, policies and procedures designed to
provide a structured and consistent approach to
community activities.

A failure to appropriately manage local
community stakeholder expectations may lead
to disruptions in production and exploration
activities.

Risk management
The Group manage the risks listed above, and
other day-to-day risks through an established
management framework. The Group has policies
in place to manage risk in the areas of health and
safety, environment and equal employment
opportunity.

Management and the Board regularly review the
risk portfolio of the business and the effec-
tiveness of the Group’s management of those
risks.

Finance

At the end of the year Kingsgate’s drawn debt
facilities consisted of:

Revolving Credit Facility
Kingsgate has a Revolving Credit Facility (“RCF”)
with $10 million drawn against this facility at 30
June 2016. A debt repayment of $5 million was
paid at the end of July 2016. The balance of the
RCF of $5 million is due for repayment at the end
of January 2017.

Kingsgate, in addition, has available over the
tenure of the RCF an Equity-linked Loan Facility
(“ELF”) of $15 million. The ELF is currently
undrawn.

Directors’ Reportwww.kingsgate.com.au29

Multi-currency loan facility
Kingsgate’s Thai operating subsidiary, Akara
Resources PCL (“Akara”), has an amortising
multi-currency loan facility which under the loan
facility agreement has less than three years
remaining following the commencement of
quarterly repayments in November 2013. Subse-
quent to the Thai Government decision on 10
May 2016 that the Chatree Gold Mine would
only be able to continue to operate until 31
December 2016, a revised mine plan was imple-
mented which from the planned production
profile indicates the potential to generate suffi-
cient cash flow to repay this debt in full by 31
December 2016. The outstanding debt balance
is classified as a current liability at year end as it
is expected to be repaid by 31 December 2016,
and covenants under the loan agreement were
not met. No default notice has been received
from the financiers. At year end the equivalent of
$75.3 million was owed against this facility and
a further equivalent $7.3 million has been repaid
since year end. As security against the facility
the lender has a fixed and floating charge over
the land, buildings, plant and equipment in
Thailand owned by Akara and its material subsid-
iaries. In addition, Akara is required to maintain a
debt service reserve account of US$5 million.

Significant change in the state of affairs
There were no significant changes in the state of
affairs of the Group that occurred during the
financial year not otherwise disclosed in this
report or the consolidated financial statements.

Matters subsequent to the end
of the financial year

No other matter or circumstance has arisen
since 30 June 2016 that has significantly
affected, or may significantly affect:
〉〉

the Group’s operations in future financial
years;

〉〉

the results of those operations in future
financial years; or

the Group’s state of affairs in future financial
years.

Likely developments and
expected results of operations

If the Thai Government’s decision to close the
Chatree Gold Mine is enforced, the fiscal year
2017 will see operations cease on 31 December
2016 with the plant then placed on care and
maintenance. Gold production up until
31 December 2016 is expected to cover all
remaining liabilities and obligations that sit
against the Chatree Gold Mine.

Work will continue on the Nueva Esperanza
Development Project in Chile, with further
targeted exploration drilling undertaken in
conjunction with advancement of feasibility
works.

Kingsgate remains focused on ongoing cost
saving initiatives. Further cost reductions will
be implemented in FY17.

Environmental regulation

The Group is subject to environmental regula-
tions in respect to its gold mining operations
and exploration activities in Australia, Thailand,
Chile and Lao PDR. For the year ended 30 June
2016, the Group has operated within all environ-
mental laws.

Directors’ meetings

The number of meetings of the Company’s
Board of Directors and of each Board Committee
held during the year ended 30 June 2016, and
the number of meetings attended by each
Director were:

Directors

Board
Meetings

Audit

Nomination

Remuneration

Meetings of Committees

Ross Smyth-Kirk

Peter Alexander

Peter McAleer1

Sharon Skeggs

Peter Warren

–

A
B

Number of meetings attended
Number of meetings held during the time the Director held office or was a member of the committee during
the year
Granted leave of absence from February 2016 due to ill health

continuedu

Directors’ ReportDirectors' Report30

Information on Directors and Company Secretary

Peter McAleer
B Com (Hons), Barrister-at-Law
(Kings Inns – Dublin Ireland)

Peter Warren
B Com, CPA

Non-Executive Director
Peter Warren was Chief Financial Officer and
Company Secretary of Kingsgate Consolidated
Limited for six years up until his retirement in
2011. He is a CPA of over 40 years standing, with
an extensive involvement in the resources
industry. He was Company Secretary and Chief
Financial Officer for Equatorial Mining Limited
and of the Australian subsidiaries of the Swiss
based Alusuisse Group and has held various
financial and accounting positions for Peabody
Resources and Hamersley Iron. Mr Warren is a
Director of Kingsgate’s wholly owned subsidiary,
Akara Resources Public Company Limited.

Responsibilities

Chairman of the Audit Committee and member
of the Nomination and Remuneration
Committees.

Ross Coyle
BA, FCPA, FGIA

Company Secretary
Ross Coyle was reappointed Company Secretary
on 7 December 2015, having previously served in
this office from September 2011 to November
2014. He is Kingsgate’s Chief Financial Officer
and was previously General Manager Finance and
Administration.

Non-Executive Director
Peter McAleer was until the end of May 2013, the
Senior Independent Director and Chairman of
the Audit Committee of Kenmare Resources PLC
(Ireland). Previously, he was Chairman of Latin
Gold Limited, Director and Chief Executive
Officer of Equatorial Mining Limited and was a
Director of Minera El Tesoro (Chile).

Responsibilities

Member of the Audit, Remuneration and
Nomination Committees.

Sharon Skeggs

Non-Executive Director
Sharon Skeggs has had a distinguished career in
business management, in London and Australia,
for over 36 years. She is an expert in business
strategy and communications. She is currently a
Director of ANZ Stadiums and was previously a
Director of Saatchi & Saatchi (Australia) for 15
years and the Australian Jockey Club.

For the past six years Ms Skeggs has consulted
to a number of major companies including
Telstra, Westpac, News Limited, Visa (Australia &
Asia) and Woolworths on a variety of corporate
matters including business and marketing strat-
egies, change management, communication
programs and cost reduction initiatives.

Responsibilities

Member of the Audit, Remuneration and
Nomination Committees.

Ross Smyth-Kirk
B Com, CPA, F Fin

Chairman
Ross Smyth-Kirk was a founding Director of the
former leading investment management
company, Clayton Robard Management Limited
and has had extensive experience over a number
of years in investment management including a
close involvement with the minerals and mining
sectors. He has been a Director of a number of
companies over the past 36 years in Australia
and the United Kingdom. Mr Smyth-Kirk was
previously Chairman of the Australian Jockey
Club Limited and retired in May 2013 as a
Director of Argent Minerals Limited. Mr Smyth-
Kirk is Chairman of Kingsgate’s wholly owned
subsidiary, Akara Resources Public Company
Limited.

Responsibilities

Chairman of the Board, member of the Audit
Committee, Chairman of the Nomination and
Remuneration Committees.

Peter Alexander
Ass. Appl. Geol

Non-Executive Director
Peter Alexander has had 43 years’ experience in
the Australian and offshore mining and explo-
ration industry. He was Managing Director of
Dominion Mining Limited for 10 years prior to his
retirement in January 2008. Mr Alexander was
appointed a Non-Executive Director of Dominion
Mining Limited in February 2008 and resigned on
21 February 2011. Mr Alexander is a
Non-Executive Director of the ASX listed
companies Doray Minerals Limited and Caravel
Minerals Limited. He was previously Chairman of
Doray Minerals Limited and a Director of Fortunis
Resources Limited.

Responsibilities

Member of the Remuneration Committee.

Directors’ Reportwww.kingsgate.com.au
Remuneration Report

Dear Shareholder

I am pleased to present our Remuneration Report for 2016.

During the 2016 financial year, the Company’s remuneration practices have reflected the market conditions in which we operate.

We are confident our remuneration practices are sound, market competitive and demonstrate a clear link between executive’s
performance and shareholder returns. Benchmarking of salaries for all roles is routinely undertaken to ensure that we remain a
competitive employer in the market while continuing to meet all legislative and regulatory requirements.

Our discipline in this area has been combined with significant change to management initiatives to ensure that cost reductions
within our business have been in line with market conditions. As a result certain senior executives have taken a 10% reduction in
remuneration effective from 1 October 2015.

The Group’s framework for awarding long term incentives (“LTI”) was subject to a comprehensive review by the Board during the
2016 financial year with the decision made to reintroduce the previously implemented Employee Share Option Plan (“ESOP”).
Other than the issue of options to the new General Manager of Corporate Development who was appointed in April 2016 no
other LTI awards were granted during the year. In addition no Short Term Incentives were awarded during the year.

We will continue to consider your feedback as shareholders and review our remuneration and incentive policies and framework to
meet future market changes.

Thank you for your interest in this report.

Ross Smyth-Kirk
Chairman
Remuneration Committee

continuedu

Directors’ ReportDirectors' ReportThe following arrangements were implemented
by the Remuneration Committee to ensure that
the remuneration recommendations were free
from undue influence:
〉〉

the Godfrey Remuneration Pty Ltd was
engaged by, and reported directly to, the
Chair of the Remuneration Committee. The
agreement for the provision of remuneration
consulting services was executed by the
Chair of the Remuneration Committee under
delegated authority on behalf of the Board;
and

〉〉

any remuneration recommendations by the
Godfrey Remuneration Group Pty Ltd were
made directly to the Chair of the Remuner-
ation Committee.

As a consequence, the Board is satisfied that the
recommendations contained in the report were
made free from undue influence from any
members of the Group’s KMP.

Executive Director and Key
Management Personnel
Remuneration

The executive pay and reward framework is
comprised of three components:
〉〉

fixed remuneration including
superannuation;

〉〉

short-term performance incentives; and

long-term incentives through participation in
the Executive Rights Plan and Options.

Introduction

This Remuneration Report forms part of the
Directors’ Report. It outlines the Remuneration
Policy and framework applied by the Company
as well as details of the remuneration paid to
Key Management Personnel (“KMP”). KMP are
defined as those persons having the authority
and responsibility for planning, directing and
controlling the activities of the Company,
directly or indirectly, including Directors and
members of Executive Management.

The information provided in this report has been
prepared in accordance with s300A and audited
as required by section 308 (3c) of the Corpora-
tions Act 2001.

The objective of the Company’s remuneration
philosophy is to ensure that Directors and
Executives are remunerated fairly and respon-
sibly at a level that is competitive, reasonable
and appropriate, in order to attract and retain
suitably skilled and experienced people.

Remuneration Policy

The Remuneration Policy other than the termi-
nation of the Executive Rights Plan and the
reintroduction of the Kingsgate Employee Share
Option Plan remains unchanged from last
financial year. The Remuneration Policy has been
designed to align the interests of shareholders,
Directors, and employees. This is achieved by
setting a framework to:
〉〉 help ensure an applicable balance of fixed
and at-risk remuneration, with the at-risk
component linking incentive and perfor-
mance measures to both Group and
individual performance;

〉〉 provide an appropriate reward for Directors
and Executive Management to manage and
lead the business successfully and to drive
strong, long-term growth in line with the
Company’s strategy and business objectives;

〉〉

encourage executives to strive for superior
performance;

facilitate transparency and fairness in
executive remuneration policy and practices;

〉〉 be competitive and cost effective in the

current employment market; and

〉〉

contribute to appropriate attraction and
retention strategies for Directors and
executives.

In consultation with external remuneration
consultants, the Group has structured an
executive remuneration framework that is
market competitive and aligned with to the
business strategy of the organisation.

The framework is intended to provide a mix of
fixed and variable remuneration, with a blend of
short and long-term incentives as appropriate.
As executives gain seniority within the Group,
the balance of this mix shifts to a higher
proportion of “at risk” rewards (refer to chart
– Reward Mix on page 33).

Remuneration Governance

Role of the Remuneration Committee
The Remuneration Committee is a committee of
the Board and has responsibility for setting
policy for determining the nature and amount of
emoluments of Board members and Executives.
The Committee makes recommendations to the
Board concerning:
〉〉 Non-Executive Director fees;
〉〉

remuneration level of Executive Directors
and other KMP;

〉〉

the executive remuneration framework and
operation of the incentive plan;

key performance indicators and performance
hurdles for the executive team; and

the engagement of specialist external
consultants to design or validate method-
ology used by the Company to remunerate
Directors and employees.

In forming its recommendations the Committee
takes into consideration the Group’s stage of
development, remuneration in the industry and
performance. The Corporate Governance
Statement provides further information on the
role of this committee.

Remuneration consultants
The Group engages the services of independent
and specialist remuneration consultants from
time to time. Under the Corporations Act 2001,
remuneration consultants must be engaged by
the Non-Executive Directors and reporting of
any remuneration recommendations must be
made directly to the Remuneration Committee.

The Remuneration Committee engaged the
services of Godfrey Remuneration Group Pty Ltd
in the 2013/2014 financial year to review its
remuneration practice revisions and to provide
further validation in respect of both the
executive short-term and long-term incentive
plan design methodology and standards. These
recommendations covered the remuneration of
the Group’s Non-Executive Directors and KMP.

The Godfrey Remuneration Group Pty Ltd
confirmed that the recommendations from that
review were made free from undue influence by
members of the Group’s KMP.

Directors’ Reportwww.kingsgate.com.auRemuneration Reward Mix (based on the achievement of all stretch targets)

MD/CEO

COO/CFO

49%

29%

22%

57%

29%

14%

Other Direct Reports to MD/CEO

60%

25%

15%

Total Fixed Remuneration (TFR)
Base salary and superannuation

Short-Term
Incentive (STI)

Long-Term
Incentive (LTI)

* The above reward mix remains unchanged from financial year 2013/2014 and LTI relate to deferred

and performance rights.

Reward mix
The chart opposite represents the remuneration
reward mix for the various KMP based on
achievement of all stretch targets.

Fixed remuneration
Total fixed remuneration (“TFR”) is structured as
a total employment cost package, including
base pay and superannuation. Base pay may be
delivered as a mix of cash, statutory and salary
sacrificed superannuation, and prescribed
non-financial benefits at the Executive’s
discretion.

Executives are offered a competitive base pay.
Base pay for executives is reviewed annually to
ensure their pay is competitive with the market.
An executive’s pay is also reviewed on promotion.

The Board annually reviews and determines the
fixed remuneration for the CEO. The CEO does
the same for his direct reports. The Executive
Management group reviews and recommends
fixed remuneration for other senior management,
for the CEO’s approval. There are no guaranteed
increases to fixed remuneration incorporated into
any senior executives’ agreements. The base pay
of a number of Executives was reduced by 10%,
effective from October, 2015.

The following summarises the performance of the
Group over the last five years.

Revenue (‘000s)

Net profit/(loss) after income tax (‘000s)

EBITDA (‘000s)

Share price at year end ($/share)

Dividends paid (cent/share)

KMP short term employee benefits (‘000s)

* see page 41 for table outlining the short term employee benefits

2016

2015

2014

2013

2012

253,328

(229,451)

39,864

0.41

Nil

*2,358

313,162

(147,643)

69,458

0.70

Nil

3,425

328,326

(97,613)

64,207

0.86

Nil

4,471

329,282

(327,067)

96,424

1.27

5.0

4,671

357,372

75,006

166,732

4.85

20.0

4,456

continuedu

Directors’ ReportDirectors' Report34

Short-Term Incentives
Linking current financial year earnings of executives to their performance and the performance of the Group is the key objective of our Short-Term Incentive
(“STI”) Plan. The Remuneration Committee set key performance measures and indicators for the individual executives on an annual basis that reinforce the
Group’s business plan and targets for the year. No short-term incentives were awarded during the financial year.

The Board has discretion to issue cash bonuses to employees for individual performance outside the STI Plan.

The structure of the STI Plan remains unchanged from financial year 2014/2015 and its key features are outlined in the table below:

Overview of the STI Plan

What is the STI plan
and who participates?

How much can the
executives earn under
the STI Plan?

The STI Plan is a potential annual reward for eligible Executive Key Management Personnel for achievement of predetermined individual
Key Performance Indicators (KPIs) aligned to the achievement of business objectives for the assessment period (financial year
commencing 1 July).

Threshold – Represents the minimum acceptable level of performance that needs to be achieved before any Individual Award would be
payable in relation to that Performance Measure.
Managing Director/CEO – up to 15% of TFR. COO & CFO – up to 12.5% of TFR. Other KMP – up to 10% of TFR.
Target – Represents a challenging but achievable level of performance relative to past and otherwise expected achievements. It will
normally be the budget level for financial and other quantitative performance objectives.
Managing Director/CEO – up to 30% of TFR. COO & CFO – up to 25% of TFR. Other KMP – up to 20% of TFR.
Stretch (Maximum) – Represents a clearly outstanding level of performance which is evident to all as a very high level of achievement.
Managing Director/CEO – up to 60% of TFR. COO & CFO – up to 50% of TFR. Other KMP – up to 40% of TFR.

(TFR – Total Fixed Remuneration)

Is there Board discretion
in the payment of an
STI benefit?

Yes, the plan provides for Board discretion in the approval of STI outcomes.

What are the
performance conditions?

For KMP between 70% – 80% of potential STI weighting (dependent upon role) is assessed against specific predetermined KPIs by role
with 20% – 30% being based on company performance indicators.

How are performance
targets set and
assessed?

Individual performance targets are set by the identification of key achievements required by role in order to meet business objectives
determined for the upcoming assessment period in advance. The criteria for KMP are recommended by the Managing Director/CEO for
sign off by the Remuneration Committee and in the case of the Managing Director/CEO, are recommended by the Chairman by sign off
by the Remuneration Committee.
The relative achievement at the end of the financial period is determined by the above authorities with final sign off by the Remuneration
Committee after confirmation of financial results and individual/company performance against established criteria.
The Remuneration Committee is responsible for assessing whether the KPIs are met. To assist in this assessment, the Committee
receives detailed reports on performance from management which are verified by independent remuneration consultants if required.
The Committee has the discretion to adjust STIs in light of unexpected or unintended circumstances.

How is the STI delivered?

STIs are paid in cash after the conclusion of the assessment period and confirmation of financial results/individual performance and
subject to tax in accordance with prevailing Australian tax laws. The STIs are then in effect paid and expensed in the financial year
subsequent to the measurement year.

What happens in the
event of cessation of
employment?

Executives are required to be employed for the full 12 months of the assessment period before they are eligible to be considered to
receive benefits from the STI plan.

Directors’ Reportwww.kingsgate.com.au35

Long-Term Incentives
The objectives of the LTI Plan are to retain key executives and to align an at-risk component of certain executives’ remuneration with shareholder returns.
The previously operating Kingsgate Long-Term Incentive (“LTI”) plan, also referred to as the Executive Rights Plan, has been terminated and replaced by the
Kingsgate Employee Share Option Plan (“ESOP”). The rules and terms and conditions of the ESOP have been independently reviewed.

Under the terms of the ESOP long-term incentives can be provided to certain employees through the issue of options to acquire Kingsgate shares. Options
are issued to employees to provide incentives for employees to deliver long-term shareholder returns.

At the date of this report other than 1,500,000 options granted to Alistair Waddell General Manager of Corporate Development no other executive was the
recipient of options during the year.

Key features of the ESOP LTI Plan are outlined in the following table:

Overview of the ESOP LTI Plan

What is the LTI Plan
and who
participates?

Kingsgate executives and other eligible employees can be granted options to acquire Kingsgate Consolidated Limited fully paid shares.
In granting the options the Board takes into account such matters as the position of the eligible person, the role they play in the
Company, their current level of fixed remuneration, the nature of the terms of employment and the contribution they make to the Group.

What are the
performance and
vesting conditions?

The period over which the options vest is at the discretion of the Board though in general it is 1-3 years. The executive and eligible
employee must still be employed by the Company at vesting date.

Is there a cost to
participate?

The options may at the discretion of the Board be issued for nil consideration and are granted in accordance with performance guide-
lines established by the Remuneration Committee and approved by the Board.

What happens in
the event of bonus
shares, rights
issues or other
capital
reconstructions?

If between the grant date and the date of conversion of options into shares there are bonus shares, rights issues or other capital
reconstructions that affect the value of Kingsgate Consolidated shares, the Board may, subject to the ASX Listing Rules make adjust-
ments to the number of rights and/or the vesting entitlements to ensure that holders of rights are neither advantaged or disadvantaged
by those changes.

Key features of the previous Executive Rights Plan are outlined in the following table:

All outstanding Performance Rights and Deferred Rights vested on 1 July 2016 with the Performance Rights subsequently lapsed.

Overview of the LTI Plan

What is the LTI Plan
and who
participates?

What is awarded
under the LTI Plan?

How much can the
executives earn
under the LTI Plan?

What are the
performance and
vesting conditions?

Kingsgate executives can be granted Kingsgate Consolidated Limited rights each year, although an award of rights does not confer any
entitlement to receive any subsequent awards. In awarding rights the Board takes into account such matters as the position of the
eligible person, the role they play in the Company, their current level of fixed remuneration, the nature of the terms of employment and
the contribution they make to the Group. Currently only members of the Executive Management group and key site based operational
senior management are eligible to participate in the LTI plan.

Two types of rights are offered under the LTI Plan: Deferred Rights and Performance Rights.

Managing Director/CEO – up to 45% of TFR as Performance Rights only.
COO/CFO/Executive Management – up to 12.5% of TFR as Deferred Rights and additionally, up to 12.5% of TFR as Performance Rights.

Deferred Rights – vesting is time based (three years after the granting of the Deferred Right).
Performance Rights – refer to Vesting Schedule for Performance Rights later in this report.

Is there a cost to
participate?

The rights are issued for nil consideration and are granted in accordance with performance guidelines established by the Remuneration
Committee and approved by the Board.

continuedu

Directors’ ReportDirectors' Report36

What are the
specific perfor-
mance / vesting
criteria?

Deferred Rights are subject to three year vesting periods. There are no performance conditions attached to the Deferred Rights.
Performance Rights are subject to a three year performance measurement period from 1 July in the year when the grant occurs.

How does the LTI
vest?

Performance Rights vest subject to the achievement of a hurdle based on total shareholder return. Further information on the vesting
scale is below.

Is the LTI subject to
retesting?

What criteria are
used for
assessment and
who assesses
performance?

How is the LTI
delivered?

What happens in
the event of bonus
shares, rights
issues or other
capital
reconstructions?

There is no retesting of either the Deferred Rights or Performance Rights.

Performance is assessed against a TSR Alpha™ measure for financial years 12/13 and 13/14 executive performance rights. For
financial year 14/15 and going forward, performance rights are measured against the S&P/ASX All Ordinaries Gold (AUD) index (gold
production only and to include dividends paid). The Remuneration Committee signs off performance assessment based on recom-
mendations by the Managing Director/CEO with advice from Godfrey Remuneration Group Pty Ltd in terms of relative performance.

On vesting the first $1,000 value of each of the deferred rights and performance rights awards is paid in cash, e.g. if both deferred and
Performance Rights vested at the same time then the participant would receive two x $1,000 with the remaining value of the award
received as shares in the Company as per below.
Number of shares = (number of vested rights x share price on vesting date – $2,000) ÷ share price on vesting date.

If between the grant date and the date of conversion of vested rights into cash and restricted shares there are bonus shares, rights
issues or other capital reconstructions that affect the value of Kingsgate Consolidated shares, the Board may, subject to the ASX
Listing Rules make adjustments to the number of rights and/or the vesting entitlements to ensure that holders of rights are neither
advantaged or disadvantaged by those changes.

Takeover or Scheme
of Arrangement?

Unvested rights vest in the proportion that the share price has increased since the beginning of the vesting period. All vested rights
need to be exercised within three months of the takeover.

What happens
in the event of
cessation of
employment?

Unvested rights are forfeited on dismissal for cause. In all other termination circumstances any unvested rights granted in the year of
the cessation of employment are forfeited in the proportion that the remainder of the year bears to a full year. Unvested rights that are
not forfeited are retained by the participant and are subsequently tested for vesting at the end of the vesting period.

Vesting schedule for Performance Rights issued after financial year 2013/2014

Following a review by the Remuneration Committee of recommendations by the Godfrey Remuneration Group in financial year 2013/2014, the Board
approved the assessment of relative Total Shareholder Return “TSR” of Kingsgate against S&P/ASX All Ordinaries Gold (AUD) index of companies, as repre-
sented in Diagram 1. The Board chose to replace the TSR Alpha™ measurement with this new measure to:
〉〉 provide a genuine measure of performance by executives against companies operating in the same market segment;
〉〉

retain the key values of the previous TSR Alpha™ measure which is to only reward executives for over performance;

〉〉

retain a focus on performance from an investors perspective albeit within a defined market segment; and

create a simple and easy system to interpret for management and shareholders alike.

These Performance Rights will be subject to a three year vesting period.

Vesting schedule for Performance Rights issued for financial year 2012/2013 and financial year 2013/2014

These Performance Rights continue to be subject to a hurdle that is derived for the three year vesting period using the external performance measuring
metric, TSR Alpha™.

Total Shareholder Return measures the percentage return received by a shareholder from investing in a company’s shares over a period of time. Broadly, it is
share price growth plus dividends over the period. TSR Alpha™ takes into account market movement over the vesting period and the additional return (risk
premium) that shareholders expect from the share market performance over the vesting period. In essence it measures whether shareholders have received a
return over the period that is consistent with their expectations (TSR Alpha™ of zero) or more or less.

Directors’ Reportwww.kingsgate.com.au37

Executive Performance Rights Vesting Scale

The diagram below provides an overview of the Performance Rights Vesting Scale to be applied to performance rights issued after financial year 2013/2014.

Vesting Scale

100% Vesting

Pro-rata
Vesting

Diagram 1: Overview of Performance Rights Vesting Scale

TSR Performance

75th Percentile of TSR Performance

Stretch Return

Pro-rata vesting between
50th and 75th Percentile
of TSR Performance

e
c
n
a
m
r
o
f
r
e
P
R
S
T
e
v
i
t
a
e
R

50th Percentile of TSR Performance

Target Return

50% Vesting

Performance Rights Issue 3 years Vesting Period

0% Vesting

Year 1

Year 2

Year 3

Options
Options are issued to executive to provide long-term incentives for executives to deliver long-term shareholder returns. Details of options issued as remuner-
ation to the Key Management Personnel (Alistair Waddell, General Manager Corporate Development) during the year are set out below.

Grant date

29 Apr 2016

Exercise period

Exercise price ($)

Number of options
granted during
the year

Value of option at
grant date ($)

Number of options
vested during
the year

1 July 2017 – 30 June 2019

1 July 2018 – 30 June 2020

1 July 2019 – 30 June 2021

0.40

0.50

0.60

500,000

0.23

0.24

0.22

–

Options granted carry no dividend or voting rights. When exercisable, each option is convertible into one ordinary share. Further information on the options
is set out in Note 24 to the financial statements.

continuedu

Directors’ ReportDirectors' Report

Directors and Key Management Personnel
Except where noted, the named persons held their current positions for the whole of the year and up to the date of this report.

Chairman

Ross Smyth-Kirk

Non-Executive Chairman

Non-Executive Directors

Peter Alexander

Non-Executive Director

Peter McAleer

Non-Executive Director*

Sharon Skeggs

Non-Executive Director

Peter Warren

Non-Executive Director

Senior Executives

Greg Foulis

Ross Coyle

Chief Executive Officer

Chief Financial Officer and Company Secretary – appointed Company Secretary 7 December 2015

Tim Benfield

Chief Operating Officer – ceased employment 9 August 2016

Alistair Waddell

General Manager Corporate Development – commenced 1 April 2016

Ron James

Paul Mason

General Manager Exploration – ceased employment 31 May 2016

Company Secretary – resigned Company Secretary 7 December 2015

Joel Forwood

General Manager Corporate and Markets – ceased employment 30 September 2015

* granted leave of absence from February 2016 due to ill health

Changes since the end of the reporting period
Except where noted, there have been no changes to Directors and Key Management Personnel since the end of the reporting period.

Directors’ Reportwww.kingsgate.com.au39

Contract terms of the Executive Directors and Key Management Personnel
Remuneration and other key terms of employment for the Senior Executives are summarised in the following table.

Name

Ross Smyth-Kirk

Greg Foulis

Ross Coyle

Tim Benfield

Alistair Waddell

Ron James

Paul Mason

Joel Forwood

Term of
agreement

Fixed annual remuneration
including superannuation

Notice period by
Executive

Notice period by
the Company9

FY 20161

FY 20151

–

2$157,680

N/A

$600,000

4$405,000

3$450,504

10C$370,000

5$400,000

7$210,000

$600,000

$450,000

$500,504

n/a

$400,000

$210,000

3 months

1 month

6$330,504

$330,504

3 months

8N/A

12 months

6 months

1 month

6 months

Open

Amount shown are annual salaries as at year end or date ceased employment with the Group.
Amount shown includes a voluntary 10% reduction in fixed remuneration from 1 October 2013. Role reverted to Non-Executive Chairman effective 1 July 2015.
A voluntary 10% reduction in fixed remuneration effective from 1 October 2015.
A voluntary 10% reduction in fixed remuneration effective from 1 October 2015.
Ceased employment 31 May 2016. A voluntary 10% reduction in fixed remuneration effective from 1 October 2015 to 30 April 2016.
Ceased employment 30 September 2015.
Resigned as Company Secretary 7 December 2015.
Temporary role as Executive Chairman. Role reverted to Non-Executive Chairman effective 1 July 2015.
Notice Period by the Company in respect of benefits payable in the event of an early termination only.

1
2
3
4
5
6
7
8
9
10 Canadian dollars. Commenced 1 April 2016.

Fixed annual remuneration, inclusive of the required superannuation contribution amount is reviewed annually by the Board following the end of the
financial year.

In the event of the completion of a takeover (relevant interest exceeds 50%) certain executives will receive a lump sum gross payment equal to between six
to 12 months of the Total Remuneration Package. If within six months after the completion of the takeover the executive elects to terminate his employment
or his employment is terminated by the Company the executive will not be entitled to any notice of termination or payment in lieu of notice.

continuedu

Directors’ ReportDirectors' Report

Non-Executive Directors fees

Non-Executive Directors are paid fixed fees for their services to the Company plus statutory superannuation contributions the Company is required by law to
make on their behalf. Those fees are inclusive of any salary-sacrificed contribution to superannuation that a Non-Executive Director wishes to make.

The level of Non-Executive Directors fees is set so as to attract the best candidates for the Board while maintaining a level commensurate with boards of
similar size and type. The Board may also seek the advice of independent remuneration consultants, including survey data, to ensure Non-Executive
Directors’ fees and payments are consistent with the current market.

Non-Executive Directors’ base fees inclusive of committee membership but not including statutory superannuation are outlined as follows. Note that from
the period 1 October 2013, all Non-Executive Directors fees were voluntarily reduced by 10% and this reduction is still in place as at the date of this report.

Chairman

Directors

Financial
year ended
30 June 2016 1
$

Financial
year ended
30 June 2015 1
$

144,0003
360,000

41,8192
360,000

504,000

401,819

1
2
3

On an annualised basis for all Directors and excludes Director fees paid by subsidiary.
Amount shown is for the period up to 16 October 2014, being the date the Chairman’s role changed from Non-Executive to Executive.
Role reverted to Non-Executive Chairman effective 1 July 2015.

The aggregate remuneration of Non-Executive Directors is set by shareholders in general meeting in accordance with the Constitution of the Company, with
individual Non-Executive Directors remuneration determined by the Board within the aggregate total. The aggregate amount of Non-Executive Directors’
fees approved by shareholders on 13 November 2008 is $1,000,000.

Non-Executive Directors do not receive any additional fees for serving on committees of the Company. Where applicable Non-Executive Directors may
receive director fees if served as directors in operating subsidiaries (see page 41 for details).

There are no retirement allowances for Non-Executive Directors.

Directors’ Reportwww.kingsgate.com.au41

Additional statutory disclosures

Details of remuneration
Details of the nature and amount of each major element of the remuneration of the Directors and the Group Key Management Personnel are set out in the
following tables:

Short-term benefits

Long-term
benefits

Post-employment
benefits

Share-based payment

Year ended
30 June 2016

Cash salary
and fees

Cash
bonus

Other
benefits2

Non-
monetary
benefits1

Other
benefits2

Super-
annuation

Termination
benefits3

Amortised
value of
rights4
(accounting
expense)

Options

Total

Name

Non-Executive Chairman
Ross Smyth-Kirk
Paid by Company
Paid by subsidiary5

Non-Executive Directors
Peter Alexander
Peter McAleer6
Sharon Skeggs

Peter Warren
Paid by Company
Paid by subsidiary5

Sub-total Non-Executive
Directors Compensation

Other KMPs
Greg Foulis
Ross Coyle7
Paid by Company
Paid by subsidiary5
Tim Benfield8
Alistair Waddell
Ron James9

Joel Forwood10
Paul Mason11

144,000
25,414

90,000

90,000
18,125

547,539

565,000

381,250
3,940

443,696

95,950

317,083

53,877

35,000

Sub-total other KMP
Compensation

TOTAL

1,895,796

2,443,335

–
–

–

–
–

–

–
–

–

–
–

–

–
–

–

26,792

–
(24,906)
–

(15,173)

9,219

(86,782)

3,959

(1,003)

(87,894)

2,617
–

–

–
–

2,617

–

–
–

–

–
–

–

–
–

–

1,499

–
6,940
–

5,967

137

87,169

(10,324)

(3,675)

13,680
–

8,550

–

8,550

8,550
–

39,330

35,000

35,000
–

19,308

–

35,000

28,750

35,000

–
–

–

–
–

–

–
–

254,102

–

216,099

–

–
–

–

12 (35,910)
–

(35,910)

–

58,539
–

75,049

–
–

–

–
–

–

–
–

–

31,636

12 (53,682)

12 (46,337)
–

–

160,297
25,414

98,550

90,000

98,550

62,640
18,125

553,576

628,291

456,823
3,940

782,949

136,942

298,788

246,024

65,322

87,713

188,058

470,201

33,569

31,636

2,619,079

(87,894)

2,617

87,713

227,388

470,201

(2,341)

31,636

3,172,655

1 Non-monetary benefits relate primarily to car

parking.
Represents annual leave (short term) and long
service leave (long term) entitlements, measured
on an accrual basis, and reflects the movement in
the entitlements over the 12 month period.
Benefits paid were in accordance with
employment contract.
Amortised value of rights comprises the fair value
of performance and deferred rights expensed

during the year. This is an accounting expense
and does not reflect the value to the executive of
rights that vested in the financial year. Refer to
the table on page 45 for the value of rights that
have vested.
Fees paid by subsidiary relate to director fees paid
by Akara Resources PCL. The payment of these
fees ceased in November 2015.
Consulting Fees of $90,000 were paid or payable
to Norwest Mining Consultants Ltd, of which Peter
McAleer is an officer and director.

Appointed Company Secretary 7 December 2015.
7
Ceased employment 9 August 2016.
8
9
Ceased employment 31 May 2016.
10 Ceased employment 30 September 2015.
11 Resigned Company Secretary 7 December 2015.
12 Amortised value is net of write-back of expense

incurred in prior periods relating to unvested rights
that were forfeited during the year.

continuedu

Directors’ ReportDirectors' Report42

Short-term benefits

Long-term
benefits

Post-employment
benefits

Share-based
payment

Year ended
30 June 2015

Cash salary
and fees

Cash bonus

Other
benefits2

Non-
monetary
benefits1

Other
benefits2

Super-
annuation

Termination
benefits3

Amortised
value of
rights4
(accounting
expense)

Name

Non-Executive Directors
Ross Smyth-Kirk
Paid by Company5
Paid by subsidiary5,6
Peter Alexander

Craig Carracher
Paid by Company
Paid by subsidiary6
Peter McAleer7
Sharon Skeggs8
Peter Warren9
Paid by Company
Paid by subsidiary6

Sub-total Non-Executive
Directors Compensation

Executive Chairman
Ross Smyth-Kirk
Paid by Company5

Other KMPs
Greg Foulis10
Tim Benfield11
Ross Coyle12
Paid by Company
Paid by subsidiary6

Ron James
Joel Forwood

Paul Mason13

Duane Woodbury

Michael Monaghan

Geoff Day

Austen Perrin

Brett Dunstone

41,819
70,945

90,000

36,775
14,666

90,000

45,000

90,000
51,696

530,901

102,181

15,000

506,460

395,168
51,696

400,000

295,504

115,858

3,513

417,757

68,305

28,715

96,285

–
–

–

–
–

–

–
–

–

75,00014

58,50014

–

80,00014
44,75014

15,00014

–

59,147

–

50,550

Sub-total Executive
Chairman and other KMP
Compensation

2,496,442

382,947

TOTAL

3,027,343

382,947

–
–

–

–
–

–

–
–

–

3,804

4,057

(1,398)
–

(16,730)

3,947

5,061

(3,635)

(7,561)

5,278

2,236

4,268

(673)

Total

46,709
70,945

98,550

49,275
14,666

90,000

49,275

98,550
51,696

569,666

114,130

53,859

756,528

602,713
51,696

578,547

475,582

157,381

(4,030)

881,799

104,304

51,775

917
–

–

–
–

–

–
–

917

2,242

–

–
–

–

1,325

10,588

–

–
–

–

–
–

–

–
–

–

4,282

6,336
–

4,743

4,060

1,247

(5,567)

–

(1,144)

3,973
–

8,550

12,500
–

–

4,275

8,550
–

37,848

9,707

35,000

18,792

35,000
–

–

35,000

20,215

334

–

4,759

3,132

6,264

–
–

–

–
–

–

–
–

–

–
–

–

434,903

25,962

17,692

194,714

–
–

–

–
–

–

–
–

–

147,937

109,107
–

110,534

92,321

–

(33,035)15

–

(17,094)15

333,843

14,155

14,012

168,203

673,271

409,770

4,158,127

15,072

14,012

206,051

673,271

409,770

4,727,793

Directors’ Reportwww.kingsgate.com.au1 Non-monetary benefits relate primarily to car parking.
2

3
4

Represents annual leave (short term) and long service leave (long term) entitlements, measured on an accrual basis, and reflects the movement in the entitlements
over the 12 month period.
Benefits paid were in accordance with employment contract.
Amortised value of rights comprises the fair value of performance and deferred rights expensed during the year. This is an accounting expense and does not reflect
the value to the executive of rights that vested in the financial year. Refer to the table on page 45 for the value of rights that have vested.
Total remuneration for the year for Ross Smyth-Kirk for Non-Executive and Executive roles was $231,784, including cash salary and fees of $214,945, non-monetary
benefits of $3,159 and superannuation of $13,680.
Fees paid by subsidiary relate to director fees paid by Akara Resources PCL.
Consulting Fees of $90,000 were paid or payable to Norwest Mining Consultants Ltd, of which Peter McAleer is an officer and director.
Appointed Non-Executive Director 1 January 2015.
Received consulting fees of $90,000 which are not included in the remuneration table.

6
7
8
9
10 Appointed Chief Executive Officer 1 June 2015.
11 Acting Chief Executive Officer from 16 October 2014 to 30 April 2015.
12 Appointed Chief Financial Officer from 6 November 2014, previously General Manager Finance & Administration and Company Secretary. Resigned as Company

Secretary 6 November 2014.

13 Appointed Company Secretary 6 November 2014.
14 Cash bonuses paid to these executives by the Board during the 2014/2015 financial year include a discretionary component relating to individual performance in the

first half of the 2014/2015 financial year as well as an STI component relating to performance in the 2013/2014 financial year.
15 Amortised value is net of write-back of expense incurred in prior periods relating to unvested rights that were forfeited during the year.

The relative proportions of remuneration that are linked to performance and those that are fixed are as follows:

Name

Non-Executive Director
Peter Warren

Other Key Management Personnel
Greg Foulis

Ross Coyle

Tim Benfield

Alistair Waddell

Ron James

Joel Forwood

Paul Mason

Fixed remuneration
2016

STI/cash bonus
2016

At risk – LTI
2016

100%

87%
2 86%
77%

100%
2 100%
100%

–

1 –

–
1 13%
1,2 14%
3 23%
1 –
1,2 –
–

2
3

The percentages disclosed reflect the value consisting of deferred rights and performance rights, based on the value of deferred rights and performance rights
expensed during the year. Where applicable, the expenses exclude negative amounts for expenses reversed during the year due to cessation of employment.
Termination benefits are excluded in determining the relative proportion of remuneration.
The percentages disclosed reflect the value of options expensed during the year.

continuedu

Directors’ ReportDirectors' Report44

Directors’ Report

Share rights held by Key Management Personnel
Details of each grant of share rights included in the Key Management Personnel remuneration tables are noted in the following tables. Note that no deferred
or performance rights were granted in the 2015/2016 financial year.

The percentage of rights granted to Key Management Personnel on issue that have vested and the percentage that was forfeited because the person did not
meet the service criteria is set out below:

Share rights

Name

P Warren
Performance

T Benfield
Deferred
Deferred
Performance
Performance

R James
Deferred
Deferred
Performance
Performance

R Coyle
Deferred
Deferred
Performance
Performance

J Forwood
Deferred
Deferred
Performance
Performance

Financial
year granted

Number
granted

Vested
%

Vested
number

Lapsed
%

Lapsed
number

Forfeited
%

Forfeited
number

2014

95,000

–

2013
2014
2013
2014

14,205
49,407
28,409
98,814

11,364
39,526
22,727
79,051

11,080
38,538
22,159
77,075

9,375
32,609
18,750
65,217

100
–
–
–

14,205
–
–
–

11,364
–
–
–

11,080
–
–
–

9,375
–
–
–

–
–
100
–

–
–
(28,409)
–

–
–
(22,727)
–

–
–
(22,159)
–

–
–
(18,750)
–

–

–
–
–
–

–
100
–
100

–
–
–
–

–
100
–
100

–

–
–
–
–

–
(39,526)
–
(79,051)

–
–
–
–

–
(32,609)
–
(65,217)

Financial
year that
rights
may vest

2017

2016
2017
2016
2017

www.kingsgate.com.au

Directors’ Report

Value of share rights

Name

P Warren
Performance

T Benfield
Deferred
Deferred
Performance
Performance

R James
Deferred
Deferred
Performance
Performance

R Coyle
Deferred
Deferred
Performance
Performance

J Forwood
Deferred
Deferred
Performance
Performance

Financial year
that rights
may vest

Number
granted

Fair value
per right at
grant date2
$

Share rights

Total
fair value at
grant date2
$

Maximum
value yet
to vest3
$

Value at
vesting date4
$

Value at
lapse date5
$

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95,000

1.26

119,700

2016
2017
2016
2017

14,205
49,407
28,409
98,814

11,364
39,526
22,728
79,051

11,080
38,538
22,159
77,075

9,375
32,609
18,750
65,217

5.17
1.47
3.21
0.74

5.17
1.34
3.21
0.74

5.17
1.47
3.21
0.74

73,438
72,628
91,193
72,628

58,750
52,965
72,955
58,102

57,281
56,651
71,131
56,650

48,469
47,935
60,188
47,934

–

–
–
–
–

–

10,228
–
–
–

8,182
–
–
–

7,978
–
–
–

6,750
–
–
–

–
–
20,739
–

–
16,206
16,591
32,411

–
–
16,176
–

–
23,478
13,688
46,956

The minimum value of the rights yet to vest is nil, as the rights will be forfeited if the Key Management Personnel fails to meet a vesting condition.

The fair value of the performance rights was estimated using Monte Carlo simulation; taking into account the terms and conditions upon which the awards were granted.

The maximum value of the share rights yet to vest has been determined as the fair value of the rights at the grant date that is yet to be expensed.

The value at vesting date (1 July 2015) is the number of rights vesting multiplied by the Company’s share price on the vesting date. As rights convert to ordinary shares on the
vesting date, this date is also the exercise date. No payment by the holder of the right is required on vesting of the right.

The value at lapse date is the number of rights lapsing multiplied by the Company’s share price at the close of business on that day.

continuedu

Directors’ Report

Movement in LTI Rights for the year ended 30 June 2016
Performance rights

The number of performance rights held during the financial year by each Director of Kingsgate and each of the specified executives of the Group, including
their personally-related entities, are set out as follows:

2016

Non-Executive Director
Peter Warren

Other Key Management Personnel
Ross Coyle

Tim Benfield

Ron James

Joel Forwood

Deferred rights

Balance at start
of year

Granted during
the year

Converted
during the year

Lapsed/
forfeited during
the year

Balance at year
end

Vested and
exercisable at
year end

95,000

99,234

127,223

101,778

83,967

–

95,000

(22,159)

(28,409)

(101,778)

(83,967)

77,075

98,814

–

The number of deferred rights held during the financial year by each Director of Kingsgate and each of the specified executives of the Group, including their
personally-related entities, are set out as follows:

2016

Other Key Management Personnel
Ross Coyle

Tim Benfield

Ron James

Joel Forwood

Options

Balance at start
of year

Granted during
the year

Converted
during the year

Forfeited during
the year

Balance at year
end

Vested and
exercisable at
year end

49,618

63,612

50,890

41,984

–

(11,080)

(14,205)

(11,364)

(9,375)

–

(39,526)

(32,609)

38,538

49,407

–

The number of options held during the financial year by each Director of Kingsgate and each of the specified executives of the Group, including their
personally-related entities, are set out as follows:

2016

Other Key Management Personnel
Alistair Waddell

Balance at start
of year

Granted during
the year

Converted
during the year

Forfeited during
the year

Balance at year
end

Vested and
exercisable at
year end

–

1,500,000

–

1,500,000

–

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Received
during year on
conversion of
deferred rights

Other changes
during the year

Balance at
year end1

–

9,691

12,816

9,975

–

7,986

–

100,000

–

(29,666)

(15,000)

(15,916)

5,076,725

46,487

100,000

19,347

145,000

100,000

46,415

12,816

–

Balance at
start of year

5,076,725

46,487

100,000

19,347

145,000

–

36,724

–

19,691

15,000

7,930

Share holdings

2016

Non-Executive Chairman
Ross Smyth-Kirk

Non-Executive Directors
Peter Alexander

Peter McAleer

Sharon Skeggs

Peter Warren

Other Key Management Personnel
Greg Foulis

Ross Coyle

Tim Benfield

Ron James

Paul Mason

Joel Forwood

The closing balance represents the balance at year end or at the date of departure from the Group.

Loan to Director

There were no loans made to Directors or other
Key Management Personnel at any time during
the year.

Insurance of officers
During the financial year, the Group paid
premiums to insure Directors and Officers of the
Group. The contracts include a prohibition on
disclosure of the premium paid and nature of the
liabilities covered under the policy.

Directors’ interest in contracts
No material contracts involving Directors’
interests were entered into since the end of the
previous financial year or existed at the end of
the financial year other than the transactions
detailed in the note to the accounts.

Non-audit services
Details of amounts paid or payable to the
auditor for non-audit services provided during
the year are detailed in Note 30: Auditors
Remuneration. The Directors are satisfied that
the provision of non-audit services during the
period by the auditor is compatible with the
general standard of independence for auditors
imposed by the Corporations Act 2001.

Rounding of amounts

The Company is of a kind referred to in ASIC
Corporations (Rounding in Financial/Directors’
Reports) Instrument 2016/91 and in accordance
with that instrument, amounts in the Directors’
Report and Financial Report are rounded to the
nearest thousand dollars except where
otherwise indicated.

Auditors

PricewaterhouseCoopers continues in office in
accordance with section 327 of the Corporations
Act 2001.

This report is made in accordance with a
resolution of Directors.

The Directors are of the opinion that the services
disclosed in Note 30: Auditors Remuneration to
the financial statements do not compromise the
external auditor’s independence, based on the
Auditor’ representations and advice received from
the Audit Committee, for the following reasons:

〉〉

all non-audit services have been reviewed to
ensure they do not impact the integrity and
objectivity of the auditor; and

〉〉 none of the services undermine the general
principles relating to auditor independence
as set out in Code of Conduct APES 110
Code of Ethics for Professional Accountants
issued by the Accounting Professional and
Ethical Standards Board, including reviewing
or auditing the auditor’s own work, acting in
a management or decision-making capacity
for the Company, acting as advocate for the
Company or jointly sharing economic risks
and rewards.

A copy of the Auditor’s Independence Decla-
ration as required under section 307c of the
Corporations Act 2001 is set out on page 48.

Ross Smyth-Kirk
Director
Sydney
31 August 2016

Auditor’s Independence Declaration

Auditor’s
Independence
Declaration

Auditor’s Independence Declaration

As lead auditor for the audit of Kingsgate Consolidated Limited for the year ended 30 June 2016,
I declare that to the best of my knowledge and belief, there have been:

a) no contraventions of the auditor independence requirements of the Corporations Act 2001

in relation to the audit; and

b) no contraventions of any applicable code of professional conduct in relation to the audit.

This declaration is in respect of Kingsgate Consolidated Limited and the entities it controlled during
the period.

Brett Entwistle
Partner
PricewaterhouseCoopers
Sydney
31 August 2016

www.kingsgate.com.auFinancial
Statements

for the year ended 30 June 2016

Financial Statements

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Financial Statements

Consolidated Statement of Profit or Loss
and Other Comprehensive Income

for the year ended 30 June 2016

Continuing operations
Sales revenue
Costs of sales

Gross (loss)/profit

Exploration expenses
Corporate and administration expenses
Other income and expenses
Foreign exchange gain
Share of loss in associate
Impairment losses – Chatree Gold Mine
Impairment losses – exploration assets

Loss before finance costs and income tax

Finance income
Finance costs

Net finance costs

Loss before income tax
Income tax benefit/(expense)

Loss from continuing operations after income tax

Discontinued operations
Profit/(loss) from discontinued operations after income tax

Loss for the year

Other comprehensive income
Items that will never be reclassified to profit and loss
Change in fair value of employee provisions (net of tax)
Items that may be reclassified to profit and loss
Exchange differences on translation of foreign operations (net of tax)

Total other comprehensive (loss)/income for the year

Total comprehensive loss for the year

Profit/(loss) attributable to:
Owners of Kingsgate Consolidated Limited

Continuing operations
Discontinued operations

Total comprehensive loss attributable to:
Owners of Kingsgate Consolidated Limited

Continuing operations
Discontinued operations

Earnings per share

Basic and diluted loss per share from continuing operations
Basic and diluted loss per share from discontinued operations

Basic and diluted loss per share from continuing operations and discontinued operations

Note

2016
$’000

2015
*Restated
$’000

5a
5b

5c
5d

5i
5i

19a

31
31

174,412
(184,867)

(10,455)

(552)
(17,449)
(2,612)
3,655
–
(227,564)
(461)

(255,438)

406
(12,359)

(11,953)

(267,391)
3,209

(264,182)

194,808
(173,203)

21,605

(1,138)
(17,580)
755
2,699
(112)
(115,650)
(9,888)

(119,309)

777
(14,823)

(14,046)

(133,355)
(651)

(134,006)

34,731

(229,451)

(13,637)

(147,643)

201

(3,000)

(2,799)

838

60,764

61,602

(232,250)

(86,041)

(264,182)
34,731

(134,006)
(13,637)

(266,981)
34,731

(72,404)
(13,637)

Cents

(118.1)
15.5

(102.6)

(59.9)
(6.1)

(66.0)

The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.
*

Comparative information has been restated as a result of the classification of Challenger Mine and Bowdens Silver Project as discontinued operations
(refer to Note 34 for details) and the correction of error (refer to Note 35 for details).

www.kingsgate.com.au

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Consolidated Statement
of Financial Position

as at 30 June 2016

Assets
Current assets
Cash and cash equivalents

Restricted cash

Receivables

Inventories

Available-for-sale financial assets

Other assets

Total current assets

Non-current assets
Restricted cash

Receivables

Inventories

Available-for-sale financial assets

Property, plant and equipment

Exploration, evaluation and development

Other assets

Total non-current assets

TOTAL ASSETS

Liabilities
Current liabilities
Payables

Borrowings

Provisions

Total current liabilities

Non-current liabilities
Payables

Borrowings

Deferred tax liabilities

Provisions

Total non-current liabilities

TOTAL LIABILITIES

NET ASSETS

Equity
Contributed equity

Reserves

Accumulated losses

TOTAL EQUITY

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
Comparative information has been restated as a result of the correction of error (refer to Note 35 for details).
*

Financial Statements

Note

2016
$’000

2015
*Restated
$’000

36,314

7,004

12,273

26,060

540

10,919

93,110

–

4,015

–

44,278

96,972

14,130

159,395

252,505

21,313

98,097

10,555

129,965

4,074

–

119

25,983

30,176

55,472

–

19,139

47,147

–

9,619

131,377

6,601

–

55,711

1,350

188,494

143,035

18,442

413,633

545,010

27,344

67,552

3,625

98,521

7,171

75,071

388

39,226

121,856

160,141

220,377

92,364

324,633

19a

19b

677,042

50,949

(635,627)

677,109

53,700

(406,176)

92,364

324,633

Financial Statements

Consolidated Statement
of Changes in Equity

for the year ended 30 June 2016

Balance at 1 July 2014 (*Restated)

Loss after income tax

Total other comprehensive loss for the year

Total comprehensive loss for the year

Transaction with owners in their capacity as owners:

Movement in share-based payment reserve

Total transaction with owners

Balance at 30 June 2015 (*Restated)

Balance at 1 July 2015

Loss after income tax

Total other comprehensive loss for the year

Total comprehensive loss for the year

Transaction with owners in their capacity as owners:
Movement in contributed equity

Movement in share-based payment reserve

Total transaction with owners

Balance at 30 June 2016

Note

19b

19a

Contributed
equity
$’000

Reserves
$’000

Accumulated
losses
$’000

Total equity
$’000

677,109

(8,312)

(258,533)

410,264

–

61,602

410

(147,643)

–

(147,643)

61,602

(147,643)

(86,041)

–

410

677,109

53,700

(406,176)

324,633

677,109

53,700

(406,176)

324,633

–

(67)

–

(67)

–

(2,799)

(229,451)

–

(229,451)

(2,799)

(229,451)

(232,250)

–

(67)

(19)

677,042

50,949

(635,627)

92,364

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
*

Comparative information has been restated as a result of the correction of error (refer to Note 35 for details).

www.kingsgate.com.au

Consolidated Statement
of Cash Flows

for the year ended 30 June 2016

Cash flows from operating activities
Receipts from customers

Payments to suppliers and employees

Interest received

Finance costs paid

Income tax paid

Financial Statements

Note

2016
$’000

2015
$’000

255,082

(203,241)

427

(5,775)

–

313,918

(226,980)

859

(9,480)

(1,671)

Net cash inflow from operating activities

46,493

76,646

Cash flows from investing activities
Payments for property, plant and equipment

Payments for exploration, evaluation and development

Increase in deposits

Proceeds from sale of Bowdens

Proceeds from sale of Challenger

Net cash outflow from investing activities

Cash flows from financing activities
Proceeds from corporate borrowings, net of transaction costs

Repayment of corporate borrowings

Repayment of subsidiary (Akara Resources PCL) borrowings

Share acquisition for the settlement of vested deferred rights

Net cash outflow from financing activities

Net decrease in cash held

Cash at the beginning of the year

Effects of exchange rate on cash and cash equivalents

Cash at the end of the year

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

(275)

(35,898)

(1,139)

20,000

250

(1,828)

(38,048)

(455)

–

(17,062)

(40,331)

3,051

(19,043)

(32,528)

(67)

2,443

(11,379)

(28,741)

–

(48,587)

(37,677)

(19,156)

55,472

(2)

36,314

(1,362)

53,632

3,202

55,472

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Financial Statements

for the year ended 30 June 2016

The Financial Report of Kingsgate Consolidated
Limited (Kingsgate or the “Company”) for the
year ended 30 June 2016 was authorised for
issue in accordance with a resolution of
Directors on 30 August 2016.

Kingsgate is a Company limited by shares incor-
porated in Australia whose shares are publicly
traded on the Australian Securities Exchange
using the ASX code KCN. The consolidated
financial statements of the Company as at and
for the year ended 30 June 2016 comprise the
Company and its subsidiaries (together referred
to as the “Group” and individually as “group
entities”). A description of the nature of the
Group’s operations and its principal activities is
included in the Directors’ Report.

1. Basis of preparation

Going Concern

The consolidated financial statements of the
Group have been prepared on a going concern
basis, which indicates continuity of business
activities and the realisation of assets and
settlement of liabilities in the normal course of
business.

As previously advised, on 10 May 2016 the Thai
Government announced that the Chatree Gold
Mine operated by Kingsgate’s subsidiary Akara
Resources Public Company Limited (“Akara”)
would only be able to continue to operate until
31 December 2016. Although uncertainty
remains regarding the manner and the legal
process that the Thai Government will use to
implement this decision, the Group is currently
of the view that there is a clear intention from
the Thai Government to shut down the Chatree
Gold Mine on 31 December 2016. The Chatree
Gold Mine in its capacity as Kingsgate’s primary
production asset is the main cash contributor
for the Group. Based on current resources within
designed pits and the potential resource and
exploration upside that exists the life of the
Chatree Gold Mine can be extended well beyond
the tenure of the current mining licences.

As at 30 June 2016, the Group’s current liabilities
exceeded its current assets by $36,855,000.
This was largely a result of the reclassification
of the external borrowing of Akara as current
liabilities as this debt is expected to be repaid
by 31 December 2016 and covenants under
the loan agreement were not met due to the
events described above. No default notice has
been received from the financiers. The total
borrowings classified as current liabilities
amounts to $98,097,000 and the Group
currently does not have sufficient cash available
to fully repay these amounts.

As a result of these matters, there is a material
uncertainty related to events or conditions that
may cast significant doubt on whether the
Group will continue as a going concern and,
therefore, whether it will realise its assets and
settle its liabilities and commitments in the
normal course of the business and at the
amounts stated in the financial report.

Over the next financial period, the continuing
viability of the Group and its ability to continue
as a going concern and to meet its commit-
ments as and when they fall due is dependent
upon the Group being able to continue to
operate the Chatree Gold Mine successfully until
31 December 2016 and generating sufficient
cash flows from the revised mine plan the Group
has implemented to enable the repayment of
creditors, employee liabilities and all external
debt by 30 June 2017. The continuing operations
of the Chatree Gold Mine also require the
ongoing support of the external lenders of the
Group until the external debt is fully repaid.

The Group has successfully operated the
Chatree Gold Mine in the past and the current
performance up to the date of this report
supports the cash flow projections from the
revised mine plan.

The external lenders of the Group have been
advised of the revised mine plan that has been
implemented to maximise cash flow from the
operation up until 31 December 2016 and they
have indicated at this time that they will support
the adoption of the revised mine plan.

In the longer term, additional funds will be
required for the Group to continue to develop the
Nueva Esperanza Gold/Silver Project and to fund
the net rehabilitation obligations of the Chatree
Gold Mine after taking into account the already
established cash backed rehabilitation fund. The
ability of the Group to continue as a going
concern, in addition to the short terms matters
described above, is dependent upon the Group
being successful in one or more the following:
〉〉

realising the value of assets including
reviewing the possibility of the sale of
Chatree Gold Mine infrastructure assets
which include plant and equipment and
non-strategic land and property;

〉〉 potentially extending the term of the metal-
lurgical licence to enable the processing of
other economic ore material beyond
31 December 2016;

〉〉 obtaining approval and implementing a

rehabilitation plan for the Chatree Gold Mine
that is commercially viable and more cost
effective for the Group and which takes into
account the significantly shorter life of mine
that has been imposed on the Group;
〉〉 pursuing available legal and other avenues
for compensation including action for
damages against the Thai Government;

〉〉

reducing, if necessary, the Group’s currently
planned ongoing expenditure;

reviewing the potential for and timing of an
equity raising; and/or

considering options that might include the
sale of assets, or entering into farm-in agree-
ments with other parties.

The Group has started a process to identify
surplus assets that can be sold, including land
and property assets at the Chatree Gold Mine.
Management has prepared a responsible and
cost effective rehabilitation plan that it believes
will meet its obligations in the context of the
early mine closure. The Group in conjunction
with its legal advisors is working methodically
through various potential remedies to
compensate for the material economic impact
of the Thai Government’s actions.

Notes to the Financial Statementswww.kingsgate.com.au55

The Directors believe that the Group will be
successful in managing the above matters and
accordingly, they have prepared the financial
report on a going concern basis. At this time the
Directors are of the opinion that no asset is
likely to be realised for an amount less than the
amount at which it is recorded in the consoli-
dated financial statements at 30 June 2016.

Accordingly no adjustments have been made to
the financial report relating to the recoverability
and classification of the asset carrying amounts
or the amounts and classification of liabilities
that might be necessary should the Group not
continue as a going concern.

The general purpose financial statements have
been prepared in accordance with the Australian
Accounting Standards, other authoritative
pronouncements of the Australian Accounting
Standards Board and the Corporations Act 2001.
The Company is a for-profit entity for the
purpose of preparing the financial statements.

Compliance with IFRS

The financial statements comply with Interna-
tional Financial Reporting Standards (“IFRS”)
adopted by the International Accounting
Standards Board (“IASB”).

Historical cost convention

The financial statements have been prepared
under the historical cost convention, as
modified by the revaluation of available-for-sale
financial assets and financial instruments
(including derivative instruments) at fair value
through profit or loss.

Functional and presentation currency

The financial statements of the Group entities
are measured using the currency of the primary
economic environment in which the entity
operates (“the functional currency”). The
consolidated statements are presented in
Australian dollars, which is the Company’s
functional currency and presentation currency.

Rounding of amounts

Critical accounting estimates

The preparation of financial statements requires
the use of certain critical accounting estimates.
It also requires management to exercise its
judgement in the process of applying the

Group’s accounting policies. The areas involving
a higher degree of judgement or complexity, or
areas where assumptions and estimates are
significant to the financial statements are
disclosed in Note 3.

2. Significant accounting

policies

The principal accounting policies adopted in the
preparation of the financial statements are set
out below. These policies have been consistently
applied to all the years presented.

a . Principles of consolidation
(i)

Business combinations

Business combinations are accounted for using
the acquisition method as at the acquisition
date, which is the date on which control is
transferred to the Group. Control is the power to
govern the financial and operating policies of an
entity so as to obtain benefits from its activities.
In assessing control, the Group takes into
consideration potential voting rights that
currently are exercisable.

The consideration transferred for the acquisition
of a subsidiary comprises the fair value of the
assets transferred, the liabilities incurred and
the equity interests issued by the Group. The
consideration transferred does not include
amounts related to the settlement of a
pre-existing relationship. Such amounts are
generally recognised in profit or loss.

Costs related to the acquisition other than those
associated with the issue of debt or equity
securities, that the Group incurs in connection
with a business combination are expensed as
incurred. Any contingent consideration payable
is recognised at fair value at the acquisition date.

Acquisitions of non-controlling interests are
accounted for as transactions with owners in
their capacity as owners and therefore no
goodwill is recognised as a result of such trans-
actions. The non-controlling interest in the
acquiree is based on the fair value of the
acquiree’s net identifiable assets. The adjust-
ments to non-controlling interests are based on
the proportionate amount of the net assets of
the subsidiary. The acquisition of an asset or
group of assets that is not a business is
accounted for by allocating the cost of the
transaction to the net identifiable assets and
liabilities acquired based on their fair values.

statements from the date that control
commences until the date that control ceases.

The accounting policies of subsidiaries have been
changed when necessary to align them with the
policies adopted by the Group. Losses applicable
to the non-controlling interests in a subsidiary
are allocated to the non-controlling interests
even if doing so causes the non-controlling
interests to have a deficit balance.

Intra-group balances and transactions, and any
unrealised gains arising from intra-group trans-
actions are eliminated in preparing the
consolidated financial statements. Unrealised
losses are also eliminated unless the transaction
provides evidence of the impairment of the asset
transferred.

b . Foreign currency translation
Transactions and balances
(i)

Foreign currency transactions are translated
into the respective functional currencies of the
Group entities at exchange rates on the dates of
the transactions. Foreign exchange gains and
losses resulting from the settlement of such
transactions and from the translation at
year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are
recognised in the profit or loss; except when
they are deferred in equity as qualifying cash
flow hedges and qualifying net investment
hedges or, are attributable to part of the net
investment in a foreign operation.

Translation differences on assets and liabilities
carried at fair value are reported as part of the
fair value gain or loss. Translation differences on
non-monetary assets and liabilities such as
equities held at fair value through profit or loss
are recognised in profit or loss as part of the fair
value gain or loss. Translation differences on
non-monetary assets are included in the fair
value reserve in equity.

Exchange gains and losses which arise on
balances between Group entities are taken to the
foreign currency translation reserve where the
intra-group balances are in substance part of the
Group’s net investment. Where as a result of a
change in circumstances, a previously designated
intra-group balance is intended to be settled in
the foreseeable future, the intra-group balance is
no longer regarded as part of net investment. The
exchange differences for such balance previously
taken directly to the foreign currency translation
reserves are recognised in the profit or loss.

(ii) Subsidiaries

(iii) Foreign operations

Subsidiaries are entities controlled by the Group.
The financial statements of subsidiaries are
included in the consolidated financial

The results and financial position of all the
Group entities (none of which has the currency
of a hyperinflationary economy) that have a

continuedu

Notes to the Financial StatementsNotes to the Financial Statements56

b . Foreign currency translation continued

functional currency different from the presen-
tation currency are translated into the
presentation currency as follows:

reviewed at each reporting date and are reduced
to the extent that it is no longer probable that the
related tax benefit will be realised.

〉〉

the assets and liabilities of the foreign opera-
tions, including goodwill and fair value
adjustments arising on acquisition, are
translated at the year-end exchange rate;

the income and expenses of foreign opera-
tions are translated at average exchange
rates (unless this is not a reasonable approxi-
mation of the cumulative effect of the rate
prevailing on the transaction dates, in which
case income and expenses are translated at
the dates of the transactions); and

〉〉

foreign currency differences are recognised in
other comprehensive income, and presented
in the foreign currency translation reserve.

c . Revenue
Revenue is measured at the fair value of the
consideration received or receivable. Sales
revenue represents the net proceeds receivable
from the buyer.

Gold and silver sales

Gold and silver revenue is recognised when the
refinery process has been finalised at which
point the sale transaction to a third party is also
completed. Transportation and refinery costs
are expensed when incurred.

Income tax

d .
Income tax expense comprises current and
deferred tax. Current tax and deferred tax is
recognised in profit or loss except to the extent
that it relates to a business combination, or
items recognised directly in equity or in other
comprehensive income.

Current tax is expected tax payable or receivable
on the taxable income or loss for the year using
tax rates enacted or substantively enacted at
the reporting date, and any adjustment to tax
payable in respect of previous years. Deferred
tax is provided using the liability method,
providing for temporary differences between
the carrying amounts of assets and liabilities for
financial; reporting purposes and the amounts
used for taxation purposes. The amount of
deferred tax provided is based on the expected
manner of realisation or settlement of the
carrying amount of assets and liabilities, using
tax rates enacted or substantively enacted at
the reporting date.

A deferred tax asset is recognised for unused tax
losses, tax credits and deductible temporary
differences, to the extent that it is probable that
future taxable profits will be available against
which they can be utilised. Deferred tax assets are

Deferred tax is not recognised for:
〉〉

temporary differences on the initial recog-
nition of assets or liabilities in a transaction
that is not a business combination and that
affects neither accounting nor taxable profit
or loss;

〉〉

temporary differences related to invest-
ments in subsidiaries where the Company is
able to control the timing of the reversal of
the temporary differences and it is probable
that they will not reverse in the foreseeable
future; and

〉〉

taxable temporary differences arising on the
initial recognition of goodwill.

Deferred tax assets and liabilities are offset if
there is a legally enforceable right to offset
current tax liabilities and assets and, they relate
to income taxes levied by the same tax authority
on the same taxable entity.

Additional income tax expenses that arise from
the distribution of cash dividends are recognised
at the same time that the liability to pay the
related dividend is recognised.

Tax consolidation

The Company and its wholly owned Australian
resident entities formed a tax-consolidation
group with effect from 1 July 2003 and are
therefore taxed as a single entity from that date.
The head entity within the tax-consolidation
group is Kingsgate Consolidated Limited.

Current tax expense or benefit, deferred tax
assets and deferred tax liabilities arising from
temporary differences of the members of the
tax-consolidation group are recognised in the
separate financial statements of the members of
the tax-consolidation group using the “stand
alone taxpayer” approach by reference to the
carrying amounts in the separate financial
statements of each entity and the tax values
applying under tax consolidation.

Current tax assets or liabilities and deferred tax
assets arising from unused tax losses assumed
by the head entity from the subsidiaries in the
tax-consolidation group, are recognised as
amounts receivable or payable to other entities
in the tax-consolidation group in conjunction
with any tax funding agreement amounts.

The Company recognises deferred tax assets
arising from unused tax losses of the tax-consoli-
dation group to the extent that it is probable
that future taxable profits of the tax-consoli-
dation group will be available against which the
asset can be utilised.

Tax funding and sharing agreements

The members of the tax-consolidation group
have entered into a funding agreement that sets
out the funding obligations of members of the
tax-consolidation group in respect of tax
amounts. The tax funding arrangements require
payments; to or from, the head entity and any
deferred tax asset assumed by the head entity,
resulting in the head entity recognising an
intra-group receivable or payable in the separate
financial statements of the members of the
tax-consolidation group equal in amount to the
tax liability or asset assumed. The intra-group
receivables or payables are at call.

The head entity recognises the assumed current
tax amounts as current tax liabilities or assets
adding to its own current tax amounts, since
they are also due to or from the same taxation
authority. The current tax liabilities or assets are
equivalent to the tax balances generated by
external transactions entered into by the
tax-consolidated group.

The amounts receivable or payable under the tax
funding agreement are due upon receipt of the
funding advice from the head entity, which is
issued as soon as practicable after the end of
each financial year. The head entity may also
require payment of interim funding amounts to
assist with its obligations to pay tax instalments.

The members of the tax-consolidation group
have also entered into a tax sharing agreement.
The tax sharing agreement provides for the
determination of the allocation of income tax
liabilities between the entities should the head
entity default on its tax payment obligations. No
amounts have been recognised in the consoli-
dated financial statements in respect of this
agreement as payment of any amounts under
the tax sharing agreement is considered remote.

e . Leases
Leases of property, plant and equipment where
the Group as lessee has substantially all the risks
and rewards of ownership are classified as
finance leases. Finance leases are capitalised at
the lease’s inception at the fair value of the
leased property or, if lower, the present value of
the minimum lease payments. The corre-
sponding rental obligations, net of finance
charges, are included in other short-term and
long-term payables. Each lease payment is
allocated between the liability and finance cost.
The finance cost is charged to the profit or loss
over the lease period so as to produce a
constant periodic rate of interest on the
remaining balance of the liability for each period.

The property, plant and equipment acquired
under finance leases is depreciated over the

Notes to the Financial Statementswww.kingsgate.com.au57

asset’s useful life or over the shorter of the
asset’s useful life and the lease term if there is
no reasonable certainty that the Group will
obtain ownership at the end of the lease term.

Leases in which a significant portion of the risks
and rewards of ownership are not transferred to
the Group as lessee are classified as operating
leases. Payments made under operating leases
(net of any incentives received from the lessor)
are charged to the profit or loss on a straight-
line basis over the period of the lease.

f . Divestment transaction costs
Transaction costs directly relating to the partial
divestment of an interest in a subsidiary are
expensed as incurred in the year prior to the
disposal where control is retained.

Impairment of assets

g .
Assets other than goodwill and indefinite life
intangible assets are tested for impairment
whenever events or changes in circumstances
indicate that the carrying amount may not be
recoverable. An impairment loss is recognised
for the amount by which the assets carrying
amount exceeds it recoverable amount. The
recoverable amount is the higher of an asset’s
fair value in use. For the purposes of assessing
impairment, assets are grouped at the lowest
levels for which there are separately identifiable
cash inflows which are largely independent of
the cash inflows from other assets or groups of
assets (cash-generating units). Non-financial
assets other than goodwill that suffered
impairment are reviewed for possible reversal of
the impairment at each reporting date.

h . Cash and cash equivalents
Cash and cash equivalents includes cash on
hand, deposits held at call with financial institu-
tions, other short-term, highly liquid
investments with original maturities of three
months or less that are readily convertible to
known amounts of cash and which are subject
to an insignificant risk of changes in value, and
bank overdrafts. Bank overdrafts are shown
within borrowings in current liabilities in the
statement of financial position.

i . Trade and other receivables
Trade and other receivables are recognised
initially at fair value and subsequently measured
at amortised cost using the effective interest
method, less provision for impairment. Receiv-
ables are due for settlement no more than 90
days from the date of recognition.

Collectability of trade and other receivables is

reviewed on an ongoing basis. Debts which are
known to be uncollectible are written off by
reducing the carrying amount directly. An
allowance account is used when there is objective
evidence that the Group will not be able to collect
all amounts due according to the original terms
of the receivables. Significant financial difficulties
of the debtor, probability that the debtor will
enter bankruptcy or financial reorganisation, and
default or delinquency in payments more than 60
days overdue are considered indicators that the
trade and other receivable is impaired. The
amount of the impairment allowance is the
difference between the asset’s carrying amount
and the present value of estimated future cash
flows, discounted at the original effective
interest rate. Cash flows relating to short-term
receivables are not discounted if the effect of
discounting is immaterial.

The amount of the impairment loss is recognised
in the income statement within other expenses.
When a trade and other receivable for which an
impairment allowance had been recognised
becomes uncollectible in a subsequent period, it
is written off against the allowance account.

Subsequent recoveries of amounts previously
written off are credited against other expenses
in the income statement.

Inventories

j .
Raw materials and stores, work in progress and
finished goods (including gold bullion), are
stated at the lower of cost and net realisable
value. Cost comprises direct materials, direct
labour and an appropriate proportion of variable
and fixed overhead expenditure, the latter being
allocated on the basis of normal operating
capacity. Costs are assigned to individual items
of inventory on the basis of weighted average
costs. Costs of purchased inventory are deter-
mined after deducting rebates and discounts.
Net realisable value is the estimated selling price
in the ordinary course of business less the
estimated costs of completion and the
estimated costs necessary to make the sale.

Stockpiles represent ore that has been extracted
and is available for further processing. If there is
significant uncertainty as to whether the stock-
piled ore will be processed it is expensed as
incurred. Where the future processing of this ore
can be predicted with confidence, e.g. because it
exceeds the mine’s cut-off grade, it is valued at
the lower of cost and net realisable value. If the
ore will not be processed within the 12 months
after the reporting date, it is included within
non-current assets. Work in progress inventory
includes ore stockpiles and other partly processed
material. Quantities are assessed primarily
through surveys and assays, and truck counts.

k . Non-derivative financial assets
Classification and recognition

The Group classifies its investments and other
financial assets in the following categories:
financial assets at fair value through profit or
loss, loans and receivables and available-for-sale
financial assets.

The classification depends on the purpose for
which the investments were acquired. The Group
determines the classification of its investments
at initial recognition and, in the case of assets
classified as held-to-maturity, re-evaluates this
designation at each reporting date.

The Group initially recognises loans and receiv-
ables and deposits on the date that they are
originated. All other financial assets (including
assets designated at fair value through profit or
loss) are recognised initially on the trade date at
which the Group becomes a party to the
contractual provisions of the instrument.

The Group de-recognises a financial asset when
the contractual rights to the cash flows from the
asset expire, or it transfers the rights to receive
the contractual cash flows on the financial asset
in a transaction in which substantially all the
risks and rewards of ownership of the financial
assets are transferred.

Financial assets and liabilities are offset and the
net amount presented in the statement of
financial position when, and only when, the
Group has a legal right to offset the amounts and
intends either to settle on a net basis or to realise
the asset and settle the liability simultaneously.

(i)

Financial assets at fair value through
profit or loss

Financial assets at fair value through profit or loss
are financial assets held for trading if acquired
principally for the purpose of selling in the short-
term. Derivatives are also categorised as held for
trading unless they are designated as hedges.

Attributable transaction costs are recognised in
the profit or loss when incurred. Assets in this
category are classified as current assets if they
are expected to be settled within 12 months,
otherwise they are classified as non-current.

(ii)

Loans and receivables

Loans and receivables are non-derivative
financial assets with fixed or determinable
payments that are not quoted in an active
market. They are included in current assets,
except for those with maturities greater than
12 months after the reporting date which are
classified as non-current assets.

Notes to the Financial StatementsNotes to the Financial Statementscontinuedu58

k . Non-derivative financial assets continued

Loans and receivables are measured at
amortised cost using the effective interest
method, less any impairment losses.

(iii) Available-for-sale financial assets

Available-for-sale financial assets, comprising
principally marketable equity securities, are
non-derivative financial assets that are either
designated in this category or not classified in
any of the other categories. They are included in
non-current assets unless management intends
to dispose of the investment within 12 months
of the reporting date. Investments are desig-
nated as available-for-sale if they do not have
fixed maturities and fixed or determinable
payments and management intends to hold
them for the medium to long term.

Subsequent to initial recognition, available-for-
sale financial assets are measured at fair value
and changes therein, other than impairment
losses, are recognised as a separate component
of equity net of attributable tax. When an asset
is derecognised the cumulative gain or loss in
equity is transferred to the income statement.

Impairment

The Group assesses at each reporting date
whether there is objective evidence that a
financial asset or group of financial assets is
impaired. In the case of equity securities
classified as available-for-sale, a significant or
prolonged decline in the fair value of a security
below its cost is considered as an indicator that
the securities are impaired. If any such evidence
exists for available-for-sale financial assets, the
cumulative loss measured as the difference
between the acquisition cost and the current
fair value, less any impairment loss on that
financial asset previously recognised in profit or
loss, is removed from equity and recognised in
the income statement. Impairment losses recog-
nised in the profit or loss on equity instruments
classified as available-for-sale are not reversed
through the income statement.

If there is evidence of impairment for any of the
Group’s financial assets carried at amortised
cost, the loss is measured as the difference
between the asset’s carrying amount and the
present value of estimated future cash flows,
excluding future credit losses that have not been
incurred. The cash flows are discounted at the
financial asset’s original effective interest rate.
The loss is recognised in the income statement.

l . Derivative financial instruments
Derivative financial instruments are used by the
Group to protect against the Group’s Australian
dollar gold price risk exposures. The Group does
not apply hedge accounting and accordingly all

fair value movements on derivative financial
instruments are recognised in the profit or loss.

Derivative financial instruments are stated at
fair value on the date a derivative contract is
entered into and are subsequently remeasured
to their fair value at each reporting date. The
resulting gain or loss is recognised in the income
statement immediately.

m . Property, plant and equipment
Property, plant and equipment are stated at
historical cost less depreciation. Historical cost
includes expenditure that is directly attributable
to the acquisition of the items.

Subsequent costs are included in the asset’s
carrying amount or recognised as a separate
asset, as appropriate, only when it is probable
that future economic benefits associated with
the item will flow to the Group and the cost of
the item can be measured reliably. The carrying
amount of any component accounted for as a
separate asset is derecognised when replaced.
All other repairs and maintenance are charged to
the income statement during the reporting
period in which they are incurred.

Depreciation

Depreciation and amortisation of mine
buildings, plant, machinery and equipment is
provided over the assessed life of the relevant
mine or asset, whichever is the shorter.

Depreciation and amortisation is determined on
a units-of-production basis over the estimated
recoverable reserves from the related area. In
some circumstances, where conversion of
resources into reserves is expected, some
elements of resources may be included. For mine
plant, machinery and equipment, which have an
expected economic life shorter than the life of
the mine, a straight line basis is adopted.

The expected useful lives are as follows:
〉〉 mine buildings – the shorter of applicable

mine life and 25 years;

〉〉 plant, machinery and equipment – the
shorter of applicable mine life and 3–15
years depending on the nature of the asset.

The estimated recoverable reserves and life of
each mine and the remaining useful life of each
class of asset are reassessed at least annually.
Where there is a change in the reserves during
the period, depreciation and amortisation rates
are adjusted prospectively from the beginning of
the reporting period.

Major spares purchased specifically for a
particular plant are capitalised and depreciated
on the same basis as the plant to which they
relate.

Impairment

An asset’s carrying amount is written down
immediately to its recoverable amount if the
asset’s carrying amount is greater than its
estimated recoverable amount (Note 2g).

De-recognition

An item of property, plant and equipment is
de-recognised upon disposal or when no future
economic benefits are expected to arise from
the continued use of the asset.

Any gain or loss arising on de-recognition of the
asset (calculated as the difference between the
net disposal proceeds and the carrying amount
of the item) is included in the profit or loss in the
period the item is de-recognised.

n . Deferred stripping costs
As part of its mining operations, the Group
incurs stripping (waste removal) costs both
during the development phase and production
phase of its operations.

Stripping costs incurred during the production
phase are generally considered to create two
benefits, being either the production of
inventory in the period or improved access to
the ore to be mined in the future. Where the
benefits are realised in the form of inventory
produced in the period, the production stripping
costs are accounted for as part of the cost of
producing those inventories. Where production
stripping costs are incurred and the benefit is
improved access to the ore to be mined in the
future, the costs are recognised as a non-current
asset, referred to as a “production stripping
asset”, if the following criteria are all met:
〉〉

future economic benefits (being improved
access to the ore body) associated with the
stripping activity are probable;

〉〉

the component of the ore body for which
access has been improved can be accurately
identified; and

the costs associated with the stripping
activity associated with that component can
be reliably measured.

The amount of stripping costs deferred is based
on the ratio obtained by dividing the volume of
waste mined by the volume of ore mined for
each component of the mine. Stripping costs
incurred in the period are deferred to the extent
that the actual current period waste to ore ratio
exceeds the life of component expected waste
to ore (“life of component”) ratio.

A component is defined as a specific volume of
the ore body that is made more accessible by the
stripping activity. An identified component of the
ore body is typically a subset of the total ore body

Notes to the Financial Statementswww.kingsgate.com.au59

of the mine. It is considered that each mine may
have several components, which are identified
based on the mine plan. The mine plans and
therefore the identification of specific compo-
nents will vary between mines as a result of both
the geological characteristics and location of the
ore body. The financial considerations of the
mining operations may also impact the identifi-
cation and designation of a component.

The identification of components is necessary
for both the measurement of costs at the initial
recognition of the production stripping asset,
and the subsequent depreciation of the
production stripping asset.

The life of component ratio is a function of an
individual mine’s design and therefore changes
to that design will generally result in changes to
the ratio. Changes in other technical or economic
parameters that impact reserves will also have an
impact on the life of component ratio even if
they do not affect the mine’s design. Changes to
the life of component ratio are accounted for
prospectively from the date of change.

The production stripping asset is initially
measured at cost, which is the accumulation of
costs directly incurred to perform the stripping
activity that improves access to the identified
component of ore. If incidental operations are
occurring at the same time as the production
stripping activity, but are not necessary for the
production stripping activity to continue as
planned, these costs are not included in the cost
of the stripping activity asset.

The production stripping asset is amortised over
the expected useful life of the identified
component of the ore body that is made more
accessible by the activity, on a units of
production basis. Economically recoverable
reserves are used to determine the expected
useful life of the identified component of the ore
body. The production stripping asset is then
carried at cost less accumulated amortisation
and any impairment losses.

The production stripping asset is included in
“Exploration, Evaluation and Development”.
These costs form part of the total investment in
the relevant cash generating unit to which they
relate, which is reviewed for impairment in
accordance with the Group’s impairment
accounting policy (Note 2g).

o . Deferred mining services costs
Provisions to the group of mining services by its
contractor do not systematically align with the
billing made by the contractor employed for
these services. When there is a material
difference between the provisions of the mining
services and the amount paid for these services,

a portion of the billing is deferred on the
statement of financial position. These amounts
are subsequently recognised in the profit or loss.
Mining services are recognised in the profit or
loss on a systematic basis based on bank cubic
metres mined by the contractor.

p .

Exploration, evaluation and
feasibility expenditure

Exploration and evaluation expenditure

Exploration and evaluation expenditure incurred
by, or on behalf of the Group is accumulated
separately for each area of interest. Such
expenditure comprises direct costs and depre-
ciation and does not include general overheads
or administrative expenditure not having a
specific nexus with a particular area of interest.

Exploration expenditure for each area of interest
is carried forward as an asset provided the rights
to tenure of the area of interest are current and
one of the following conditions is met:
〉〉

the exploration and evaluation expenditures
are expected to be recouped through
successful development and exploitation of
the area of interest, or alternatively by its
sale, or;

〉〉

exploration and evaluation activities in the
area of interest have not at the reporting
date reached a stage which permits a
reasonable assessment of the existence or
otherwise of economically recoverable
reserves, and active and significant opera-
tions in, or in relation to, the area of interest
are continuing.

Exploration expenditure is written off when it
fails to meet at least one of the conditions
outlined above or an area of interest is
abandoned. The carrying value of exploration
and evaluation assets is assessed in accordance
with AASB 6 Exploration for and Evaluation of
Mineral Resources and the Group’s impairment
policy (Note 2g).

Feasibility expenditure

Feasibility expenditure represents costs related
to the preparation and completion of a feasi-
bility study to enable a development decision to
be made in relation to an area of interest and
capitalised as incurred.

At the commencement of production; all past
exploration, evaluation and feasibility expend-
iture in respect of an area of interest that has
been capitalised is transferred to mine
properties where it is amortised over the life of
the area of interest to which it relates on a
unit-of-production basis.

q . Mine properties
Mine properties represents the accumulated
exploration, evaluation, land and development
expenditure incurred by or on behalf of the
Group in relation to areas of interest in which
mining of a mineral resource has commenced.

When further development expenditure is
incurred in respect of a mine property after
commencement of production, such expend-
iture is carried forward as part of the mine
property only when substantial future economic
benefits are thereby established. Otherwise,
such expenditure is classified as part of the cost
of production.

Amortisation of costs is provided on the units-
of-production method with separate
calculations being made for each component.
The units-of-production basis results in an
amortisation charge proportional to the
depletion of the estimated recoverable reserves.
In some circumstances, where conversion of
resources into reserves is expected, some
elements of resources may be included. Devel-
opment and land expenditure still to be incurred
in relation to the current recoverable reserves
are included in the amortisation calculation.
Where the life of the assets is shorter than the
mine life, their costs are amortised based on the
useful life of the assets.

The estimated recoverable reserves and life of
each mine and the remaining useful life of each
class of asset are reassessed at least annually.
Where there is a change in the reserves during a
six month period, depreciation and amortisation
rates are adjusted prospectively from the
beginning of that reporting period.

Investment in associates

r .
Investments in associates are accounted for using
the equity method. An associate is an entity in
which the Group has significant influence.

Under the equity method, the investment in the
associate is carried on the statement of financial
position at cost plus post-acquisition changes in
the Group’s share of net assets of the associate.

The income statement reflects the Group’s share
of the results of operations of the associate. The
Group recognises its share of any changes and
discloses this when applicable, in the statement
of changes of equity. Un-realised gains and
losses resulting from transactions between the
Group and the associate are eliminated to the
extent of the interest in the associate.

The Group’s share of profit of an associate is
included in the income statement. This is the
profit attributable to equity holders of the
associate and therefore, is profit after tax and

Notes to the Financial StatementsNotes to the Financial Statementscontinuedu60

r .

Investment in associates continued

non-controlling interests in the subsidiaries of the
associate. After application of the equity method,
the Group determines whether it is necessary to
recognise an additional impairment loss on its
investment in its associate. The Group determines
at each reporting date whether there is any
objective evidence that the investment in the
associate is impaired. If this is the case, the Group
calculates the amount of the impairment as the
difference between the recoverable amount of
the associate and its carrying value and recog-
nises the amount in the income statement.

Upon loss of significant influence over the
associate, the Group measures and recognises
any remaining investment at its fair value. Any
difference between the carrying amount of the
associate upon loss of significant influence and
the fair value of the retained investment and
proceeds from disposal is recognised in profit
or loss.

s . Trade and other payables
Trade and other payables represent liabilities for
goods and services provided to the Group prior
to the end of the financial year which are unpaid.
The amounts are unsecured and are usually paid
within 30 days of recognition.

t . Borrowings
Borrowings are initially recognised at fair value,
net of transaction costs incurred. Borrowings
are subsequently measured at amortised cost.
Any difference between the proceeds (net of
transaction costs) and the redemption amount
is recognised in the profit or loss over the period
of the borrowings using the effective interest
method. Fees paid on the establishment of loan
facilities are recognised as transaction costs to
the extent that it is probable that some or all of
the facility will be drawn down. In this case, the
fee is deferred until the drawdown occurs. To the
extent there is no evidence that it is probable
that some or all of the facility will be drawn
down, the fee is capitalised and amortised over
the period of the facility to which it relates.

Preference shares which are mandatorily
redeemable on a specific date are classified as
liabilities. The dividends on these preference
shares are recognised in the profit or loss as
finance costs.

Borrowings are removed from the statement of
financial position when the obligation specified
in the contract is discharged, cancelled or
expired. The difference between the carrying
amount of a financial liability that has been
extinguished or transferred to another party and
the consideration paid, including any non-cash
assets transferred or liabilities assumed, is
recognised in other income or finance costs.

Borrowings are classified as current liabilities
unless the Group has an unconditional right to
defer settlement of the liability for at least 12
months after the reporting date.

u . Borrowing costs
Borrowing costs directly attributable to the
acquisition, construction or production of
qualifying assets are added to the cost of those
assets, until such time as the assets are substan-
tially ready for their intended use.

Where the funds used to finance a qualifying
asset form part of general borrowings, the
amount capitalised is calculated using a weighted
average of rates applicable to the relevant
borrowings during the period. Where funds
borrowed are directly attributable to a qualifying
asset, the amount capitalised represents the
borrowing costs specific to those borrowings.

All other borrowing costs are recognised as
expenses in the period in which they are incurred.

v . Provisions
Provisions for legal claims are recognised when
the Group has a present legal or constructive
obligation as a result of past events, it is
probable that an outflow of resources will be
required to settle the obligation and the amount
has been reliably estimated. Provisions are not
recognised for future operating losses.

Where there are a number of similar obligations,
the likelihood that an outflow will be required in
settlement is determined by considering the
class of obligations as a whole. A provision is
recognised even if the likelihood of an outflow
with respect to any one item included in the
same class of obligations may be small.

Provisions are measured at the present value of
management’s best estimate of the expenditure
required to settle the present obligation at the
reporting date. The discount rate used to
determine the present value reflects current
market assessments of the time value of money
and the risks specific to the liability. The increase
in the provision due to the passage of time is
recognised as finance costs.

w .

Restoration and rehabilitation
provision

The estimated costs of decommissioning and
removing an asset and restoring the site are
included in the cost of the asset at the date the
obligation first arises and to the extent that it is
first recognised as a provision. This restoration
asset is subsequently amortised on a units-of-
production basis.

The corresponding provision of an amount
equivalent to the restoration asset created is
reviewed at the end of each reporting period.
The provision is measured at the best estimate
of present obligation at the end of the reporting
period based on current legal and other require-
ments and technology, discounted where
material using national government bond rates
at the reporting date with terms to maturity and
currencies that match, as closely as possible, the
estimated future cash outflows.

Where there is a change in the expected resto-
ration, rehabilitation or decommissioning costs,
an adjustment is recoded against the carrying
value of the provision and any related resto-
ration asset, and the effects are recognised in
the income statement on a prospective basis
over the remaining life of the operation.

The unwinding of the effect of discounting on
the rehabilitation provision is included within
finance costs in the income statement.

Costs incurred that relate to an existing condition
caused by past operations, but do not have a
future economic benefit are expensed as incurred.

x . Employee benefits
(i)

Wages and salaries, annual leave
and sick leave

Liabilities for wages and salaries (including
non-monetary benefits and annual leave)
expected to be settled within 12 months of the
reporting date are recognised in provisions for
employee benefits in respect of employees’
services up to the reporting date and are
measured at the amounts expected to be paid
when the liabilities are settled. Liabilities for sick
leave are recognised when the leave is taken and
are measured at the rates paid or payable.

(ii)

Long service leave and severance pay

The liability for long service leave and severance
pay is recognised in the provision for employee
benefits and measured as the present value of
expected future payments to be made in respect
of services provided by employees up to the
reporting date. Consideration is given to the
expected future wage and salary levels,
experience of employee departures and periods
of service. Expected future payments are
discounted using market yields at the reporting
date on national government bonds with terms
to maturity and currency that match, as closely
as possible, the estimated future cash outflows.

(iii) Cash bonuses

Cash bonuses are expensed in the income
statement at reporting date.

Notes to the Financial Statementswww.kingsgate.com.au61

A liability is recognised for the amount expected
to be paid if the Group has a present legal or
constructive obligation to pay this amount as a
result of past service provided by the Directors
or employees and the obligation can be
estimated reliably.

(iv) Retirement benefit obligations

Defined Contribution plan

Contributions to defined contribution superan-
nuation plans are recognised as an expense in
the income statement as they become payable.

Defined benefit plan

The Company’s Thai subsidiary, Akara Resources
Public Company Limited, have a defined benefit
plan which is the amount of pension benefit that
an employee will receive on retirement, usually
dependent on one or more factors such as age,
years of service and compensation.

Retirement benefit

Under Labour laws applicable in Thailand,
employees completing 120 days of service are
entitled to severance pay on termination or
retrenchment without cause or upon retirement
age of 60. The severance pay will be at the rate
according to number of years of service as
stipulated in the Labor Law which is currently at
a maximum rate of 300 days of final salary.

The liability recognised in the statement of
financial position in respect of defined benefit
pension plans is the present value of the defined
benefit obligation at the end of the reporting
period, together with adjustments for unrecog-
nised past-service costs. The defined benefit
obligation is calculated annually by independent
actuaries using the projected unit credit
method. The present value of the defined
benefit obligation is determined by discounting
the estimated future cash outflows using
market yield of government bonds that are
denominated in the currency in which the
benefits will be paid, and that have terms to
maturity approximating to the terms of the
related pension liability.

Actuarial gains and losses arising from
experience adjustments and changes in actuarial
assumptions are charged or credited to equity in
other comprehensive income in the period in
which they arise.

Past-service costs are recognised immediately in
profit or loss, unless the changes to the pension
plan are conditional on the employees remaining
in service for a specified period of time (the
vesting period). In this case, the past-service
costs are amortised on a straight-line basis over
the vesting period.

Other long-term benefits – Gold

The Company’s Thai subsidiary, Akara
Resources Public Company Limited, has a policy
to give gold to employees who have worked for
the Company for 10 years, 15 years and 20
years, in the amounts of Baht 0.5, Baht 1 and
Baht 1.5 respectively.

The liability recognised in the statement of
financial position in respect of other long-term
benefit plan is the present value of the other
long-term benefit obligation at the end of the
reporting period, together with adjustments for
unrecognised past-service costs. The other
long-term benefit obligation is calculated
annually by independent actuaries using the
projected unit credit method. The present value
of the other long-term benefit obligation is
determined by discounting the estimated future
cash outflows using market yield of government
bonds that are denominated in the currency in
which the benefits will be paid, and that have
terms to maturity approximating to the terms of
the related pension liability.

Actuarial gains and losses arising from experience
adjustments and changes in actuarial assump-
tions are charged or credited to the statement of
comprehensive income in the period in which
they arise.

Past-service costs are recognised immediately in
profit or loss.

(v) Share-based payment transactions

The Group provides benefits to employees
(including Directors) in the form of share-based
payments, whereby employees render services
in exchange for shares or rights over shares
(“equity settled transactions”).

The fair value of these equity settled transac-
tions is recognised as an employee benefit
expense with a corresponding increase in equity.
The fair value is measured at grant date and
recognised over the period during which the
employees become unconditionally entitled.

The fair value at grant date is determined using
a pricing model that takes into account the
exercise price, the term, the share price at the
grant date, the expected price volatility of the
underlying share, the expected dividend yield
and the risk free interest rate.

Upon the exercise of the equity settled reward,
the related balance of the share-based payments
reserve is transferred to share capital.

y . Dividends
Dividends are recognised as a liability in the
period in which they are declared.

z . Earnings per share
Basic earnings per share
(i)

Basic earnings per share is calculated by
dividing:
〉〉

the profit attributable to owners of the
Company, excluding any costs of servicing
equity other than ordinary shares; and

〉〉 by the weighted average number of ordinary
shares outstanding during the financial year,
adjusted for bonus elements in ordinary
shares issued during the year and excluding
treasury shares.

(ii) Diluted earnings per share

Diluted earnings per share adjust the figures
used in the determination of basic earnings per
share to take into account:
〉〉

the after income tax effect of interest and
other financing costs associated with
dilutive potential ordinary shares; and

〉〉

the weighted average number of additional
ordinary shares that would have been
outstanding assuming the conversion of
all dilutive potential ordinary shares.

aa . Contributed equity
Issued ordinary share capital is classified as
equity and is recognised at the fair value of the
consideration received by the Group. Incre-
mental costs directly attributable to the issue
of shares and share options are recognised as a
deduction, net of tax from the proceeds.

bb . Goods and services tax (GST)
Revenues, expenses and assets are recognised
net of the amount of associated GST, unless the
GST incurred is not recoverable from the
taxation authority. In this case it is recognised
as part of the cost of acquisition of the asset or
as part of the expense.

Receivables and payables are stated inclusive of
the amount of GST receivable or payable. The
net amount of GST recoverable from or payable
to, the taxation authority is included with other
receivables or payables in the statement of
financial position.

Cash flows are presented on a gross basis. The
GST components of the cash flows arising from
investing or financing activities which are recov-
erable from, or payable to the taxation authority,
are presented as operating cash flows.

Commitments and contingencies are disclosed
net of the amount of GST recoverable from, or
payable to, the taxation authority.

Notes to the Financial StatementsNotes to the Financial Statementscontinuedu62

cc . Operating and segment reporting
Operating segments are reported in a manner
consistent with the internal reporting provided
to the chief operating decision maker. The chief
operating decision maker, who is responsible for
allocating resources and assessing performance
of the operating segments, has been identified
as the Board of Directors.

Segment results that are reported to the Board
of Directors include items directly attributable
to a segment as well as those that can be
allocated on a reasonable basis. The operating
segments are disclosed in Note 4.

dd . New accounting standards and

(i)

interpretations
New and amended standards adopted
by the Group

The Group has adopted the following new and
revised accounting standards, amendments and
interpretations as of 1 July 2015:
〉〉 AASB 2013-9: Amendments to Australian

Accounting Standards – Conceptual Framework,
Materiality and Financial Instruments
〉〉 AASB 2015-3: Amendments to Australian
Accounting Standards arising from the
Withdrawal of AASB 1031: Materiality

The adoption of these new and revised
standards did not have a material impact on the
Group’s financial statements.

(ii)

New accounting standards and
interpretations not yet adopted

The Group has not elected to early adopt any
new standards, amendments or interpretations
that are issued but are not yet effective. Certain
new accounting standards and interpretations
have been published that are not mandatory for
30 June 2016 reporting periods and have not yet
been applied in the financial statements. The
Group’s assessment of the impact of these new
standards and interpretations is set out below:

〉〉 AASB 9 Financial Instruments and AASB

2010-7 and AASB 2012-6 Amendments to
AAS’s arising from AASB 9

AASB 9 includes requirements for the classifi-
cation and measurement of financial assets. It
was further amended by AASB 2010-7 to reflect
amendments to the accounting treatment of
financial liabilities.

The revised IFRS 9 will eventually replace AASB
139 and all previous versions of IFRS 9. The
revised standard includes changes to the:

〉〉

classification and measurement of financial
assets and financial liabilities;

expected credit loss impairment model; and

〉〉 hedge accounting.

Financial assets are measured at amortised cost,
fair value through profit or loss, or fair value
through other comprehensive income, based on
both the entity’s business model for managing
the financial assets and the financial asset’s
contractual cash flow characteristics.

Apart from the ‘own credit risk’ requirements,
classification and measurement of financial
liabilities is unchanged from existing
requirements.

When adopted, the standard will affect in
particular the Group’s accounting for its avail-
able-for-sale financial assets, since AASB 9 only
permits the recognition of fair value gains and
losses in other comprehensive income if they
relate to equity investments that are not held
for trading.

There will be no impact on the Group’s
accounting for financial liabilities, as the new
requirements only affect the accounting for
financial liabilities that are designated at fair
value through profit or loss and the Group does
not have any such liabilities.

The application date for the Group is 1 July 2018.

〉〉 AASB 15 Revenue from Contracts

with Customers

IFRS 15 establishes principles for reporting
useful information to users of financial state-
ments about the nature, amount, timing and
uncertainty of revenue and cash flows arising
from an entity’s contracts with customers.

The Group does not expect the adoption of this
standard to have a significant impact as gold
and silver sales are only made with reputable
institutions using a market price and on
relatively short trading terms.

The application date for the Group is 1 July 2018.

〉〉 AASB 16: Leases

This Standard sets out the principles for the
recognition, measurement, presentation and
disclosure of leases. The objective is to ensure
that lessees and lessors provide relevant infor-
mation in a manner that faithfully represents
those transactions. This information gives a
basis for users of financial statements to assess
the effect that leases have on the financial
position, financial performance and cash flows
of an entity.

The Group does not expect the adoption of this
standard to have a significant impact as the
Group does not expect to have any material
lease contracts in place on the application date
of this Standard.

The application date for the Group is 1 July 2019.

〉〉 AASB 2: Clarifications of classification

and measurement of share based payment
transactions

This Standard amends IFRS 2: Share-based
Payment to clarify how to account for certain
types of share based payment transactions.

The Group does not expect the adoption of this
Standard to have a significant impact as the use
of share-based payments by the Group in recent
years had been minimal and any impact of a
change in accounting for them would
immaterial.

IFRS 15 supersedes:

The application date for the Group is 1 July 2018.

(a)

IAS 11 Construction Contracts; and

(b)

IAS 18 Revenue.

The core principle of IFRS 15 is that an entity
recognises revenue to depict the transfer of
promised goods or services to customers in an
amount that reflects the consideration to which
the entity expects to be entitled in exchange for
those goods or services. An entity recognises
revenue in accordance with that core principle
by applying the following steps:

Step 1:

Identify the contract(s) with a customer.

Step 2:

Identify the performance obligations in
the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the

performance obligations in the contract.

Step 5: Recognise revenue when (or as) the

entity satisfies a performance obligation.

ee . Parent entity financial information
The financial information for the parent entity
Kingsgate Consolidated Limited, disclosed in
Note 32 has been prepared on the same basis as
the consolidated financial statements except as
set out below:

Investments in subsidiaries

Investments in subsidiaries are accounted for at
cost in the financial statements of Kingsgate.

Share-based payments

The issue by the Company of equity instruments
to extinguish liabilities of a subsidiary under-
taking in the Group is treated as a capital
contribution to that subsidiary undertaking.

Notes to the Financial Statementswww.kingsgate.com.au63

3. Critical accounting estimates,
assumptions and judgements

Estimates and judgements are continually
evaluated and are based on historical experience
and other factors, including expectation of
future events that may have a financial impact
on the Group and that are believed to be
reasonable under the circumstances. The Group
makes estimates and assumptions concerning
the future. Actual results may differ from these
estimates under different assumptions and
conditions. The estimates and assumptions that
could materially affect the financial position and
results are discussed below:

(i)

Mineral resources and ore
reserves estimates

The Group estimates its ore reserves and mineral
resources annually at 30 June each year, and
reports in the following October, based on
information compiled by Competent Persons as
defined and in accordance with the Australasian
code for reporting Exploration Results, Mineral
Resources and Ore Resources (JORC code 2012).
The estimated quantities of economically recov-
erable reserves are based upon interpretations
of geological models and require assumptions to
be made regarding factors such as estimates of
short and long-term exchange rates, estimates
of short and long-term commodity prices, future
capital requirements and future operating
performance. Changes in reported reserves
estimates can impact the carrying value of
property, plant and equipment (including explo-
ration and evaluation assets), the provision for
rehabilitation obligations, the recognition of
deferred tax assets, as well as the amount of
depreciation charged to the Income Statement.

(ii) Exploration and evaluation assets
Judgement is required to determine whether
future economic benefits are likely, from either
exploitation or sale, or whether activities have
not reached a stage that permits a reasonable
assessment of the existence of reserves. In
addition to these judgements, the Group has to
make certain estimates and assumptions. The
determination of a JORC resource is itself an
estimation process that involves varying degrees
of uncertainty depending on how the resources
are classified (i.e. measured, indicated or
inferred). The estimates directly impact when
the Group capitalises exploration and evaluation
expenditure. The capitalisation policy requires
management to make certain estimates and
assumptions as to future events and circum-
stances, in particular, the assessment of
whether economic quantities of reserves will be
found. Any such estimates and assumptions may
change as new information becomes available.

The recoverable amount of capitalised expend-
iture relating to undeveloped mining projects
(projects for which the decision to mine has not
yet been approved at the required authorisation
level within the Group) can be particularly
sensitive to variations in key estimates and
assumptions. If a variation in key estimates or
assumptions has a negative impact on recov-
erable amount it could result in a requirement
for impairment.

(iii) Production stripping assets
The life of component ratio is a function of the
mine design and therefore changes to that
design will generally result in changes to the
ratio. Changes in other technical or economic
parameters that impact reserves will also have
an impact on the life of component ratio even if
they do not affect the mine design. Changes to
production stripping assets resulting from a
change in life of component ratios are
accounted for prospectively.

(iv) Impairment of non-current
assets, determination of
recoverable amounts

Significant judgements and assumptions are
required in making estimates of the recoverable
amounts. This is particularly so in the assessment
of long life assets. It should be noted that the
CGU recoverable amounts are subject to varia-
bility in key assumptions including, but not
limited to, gold and silver prices, currency
exchange rates, discount rates, production
profiles and operating and capital costs. A
change in one or more of the assumptions used
to estimate the recoverable amounts would
result in a change in the CGU’s recoverable
amounts. For further details regarding the
impairment testing refer to note 14.

(v) Net realisable value
The computation of net realisable value for ore
stockpiles involves significant judgements and
estimates in relation to timing and cost of
processing, commodity prices, foreign exchange
rates, recoveries and the timing of sale of the
bullion produced. A change in any of these
assumptions will alter the estimated net
realisable value and may therefore impact the
carrying value of ore stockpiles.

(vi) Restoration and rehabilitation

provision

Significant estimates and assumptions are
required in determining the provision for mine
rehabilitation as there are many transactions
and other factors that will affect the ultimate
liability payable to rehabilitate the mine sites.
Factors that will affect this liability include
changes in technology, changes in regulations,

price increases, changes in timing of cash flows
which are based on life of mine plans and
changes in discount rates. When these factors
change or become known in the future, such
differences will impact the mine rehabilitation
provision in the period in which they change or
become known. The rehabilitation provision
relating to the Chatree Gold Mine takes into
account the premature shut-down of the mine.

(vii) Units-of-production method

of depreciation

The Group uses the units of production basis
when depreciating/amortising specific assets
which results in a depreciation/amortisation
charge proportional to the depletion of the
anticipated remaining life of mine production.
Each item’s economic life, which is assessed
annually, has due regard to both its physical life
limitations and to present assessments of
economically recoverable reserves of the mine
property at which it is located. These calculations
require the use of estimates and assumptions.

(viii) Share-based payments
The Group measures share-based payments at fair
value at the grant date. The fair value is deter-
mined by an external valuer using a Monte Carlo
simulation model or other valuation technique
appropriate for the instrument being valued.

(ix) Deferred tax balances
Deferred tax assets in respect of tax losses for
the Kingsgate tax-consolidation group (Note 6)
are only recognised to the extent of deferred tax
liabilities, the balance of tax losses are not
recognised in the financial statements as
management considers that it is currently not
probable that future taxable profits will be
available to utilise those tax losses. Management
reviews on a regular basis the future profitability
of the entities included in the tax-consolidation
group to consider if tax losses should be recog-
nised and to ensure that any tax losses
recognised will be utilised.

Deferred tax balances for temporary differences
in respect of Akara Resources PCL are measured
based on their expected rate of reversal which is
different for the two Royal Thai Board of
Investment (“BOI”) activities (Note 6). The
period in which the temporary differences will
reverse also take into account the impact of the
shutdown of the Chatree Gold Mine as discussed
in Note 1, basis of preparation going concern.
Deferred tax assets in respect of deductible
temporary differences are only recognised as
deferred tax assets to the extent of deferred tax
liabilities as management considers not probable
that future taxable profits of the entity in the
context of the shut-down of the mine will be
available to utilise them.

Notes to the Financial StatementsNotes to the Financial Statementscontinuedu64

4. Segment information

The Group’s operating segments are based on the internal management reports that are reviewed and used by the Board of Directors (chief operating
decision maker). The operating segments represent the Group’s operating mines and projects and include the following:
〉〉 Chatree Mine, Thailand;
〉〉 Challenger Mine, South Australia, Australia (discontinued during the year ended 30 June 2016);
〉〉 Bowdens Silver Project, New South Wales, Australia (discontinued during the year ended 30 June 2016);
〉〉 Nueva Esperanza Gold/Silver Project, Chile; and
〉〉

Exploration, South East Asia.

Information regarding the results of each reportable segment is included as follows:

2016

External sales revenue

Other income

Total segment revenue

Segment EBITDA

Impairment/impairment reversal*

Depreciation and amortisation

Segment result (Operating EBIT)

Finance income

Finance costs

Net finance costs

Loss before tax

Other segment information

Segment assets

Segment liabilities

Operation

Development

Exploration

Corporate

Continuing
Operations

Discontinued
Operations

Total

Chatree
$’000

174,412

521

174,933

29,830

(227,564)

(44,370)

(242,104)

–

Nueva
Esperanza
$’000

–

(3)

–

(3)

–

$’000

–

174,412

523

78,916

467

253,328

990

174,935

79,383

254,318

(561)

(461)

–

1 (12,226)
–

(83)

17,040

(228,025)

(44,453)

22,824

17,056

(1,724)

39,864

(210,969)

(46,177)

(1,022)

(12,309)

(255,438)

38,156

(217,282)

–

406

(12,359)

(11,953)

(209)

(176)

439

(12,568)

(12,129)

(242,104)

(3)

(1,022)

(12,309)

(267,391)

37,980

(229,411)

106,562

(141,354)

106,125

(6,038)

1,137

(53)

38,681

(12,696)

252,505

(160,141)

–

252,505

(160,141)

*
1

Related to the sale of Challenger Gold Mine (see Note 34).
includes foreign exchange gain of $3,655,000 for the Group.

Notes to the Financial Statementswww.kingsgate.com.au
65

2015 *Restated

External sales revenue

Other income

Total segment revenue

Segment EBITDA

Impairment

Depreciation and amortisation

Segment result (Operating EBIT)

Finance income

Finance costs

Net finance costs

Loss before tax

Other segment information

Segment assets

Segment liabilities

Operation

Development

Exploration

Corporate

Continuing
Operations

Discontinued
Operations

Total

Chatree
$’000

194,808

648

195,456

70,031

(115,650)

(49,354)

(94,973)

–

(94,973)

Nueva
Esperanza
$’000

–

$’000

–

157

194,808

118,354

313,162

805

814

195,613

118,363

313,976

(1,138)

(9,888)

–

1 (13,214)
–

(96)

55,679

(125,538)

(49,450)

13,779

(22,643)

(4,500)

69,458

(148,181)

(53,950)

(11,026)

(13,310)

(119,309)

(13,364)

(132,673)

–

777

(14,823)

(14,046)

(355)

(273)

859

(15,178)

(14,319)

(11,026)

(13,310)

(133,355)

(13,637)

(146,992)

386,243

(164,729)

96,234

(6,419)

2,956

(770)

30,156

(28,769)

515,589

(200,687)

29,421

(19,690)

545,010

(220,377)

Customer A

Customer B

** Revenue from continuing operations and discontinued operations (refer to Note 34 for details).

5. Revenue and expenses

a) Sales revenue
Gold sales

Silver sales

Sales revenue from continuing operations

Sales revenue from discontinued operations (Note 34)

Revenue**

% of External Revenue

2016
$’000

174,412

78,916

2015
$’000

194,808

118,354

2016
%

2015
%

2016
$’000

2015
$’000

159,972

14,440

174,412

78,916

177,983

16,825

194,808

118,354

Notes to the Financial StatementsNotes to the Financial Statementscontinuedu
66

5. Revenue and expenses continued

b) Cost of sales

Direct costs of mining and processing

Royalties

Inventory movements

Depreciation (operations)

Cost of sales from continuing operations

Cost of sales from discontinued operations (Note 34)

c) Corporate and administration expenses

Administration

Divestment transaction costs

Technical support and business development

Statutory and professional fees

Depreciation

Corporate and administration expenses from continuing operations

Corporate and administration expenses from discontinued operations (Note 34)

d) Other income and expenses
Net gain on sale of fixed assets

Realised loss on delivery against hedge contracts

Change in fair value of available-for-sale assets

Other revenue

Other income and expenses from continuing operations

2016
$’000

2015
$’000

112,854

14,693

12,950

44,370

184,867

57,331

13,860

–

1,016

2,490

17,449

903

(2,325)

(810)

505

(2,612)

98,478

16,019

9,352

49,354

173,203

105,704

13,434

191

1,210

2,649

17,580

564

–

120

624

755

Other income and expenses from discontinued operations (Note 34)

467

(2,632)

e) Finance costs

Interest and finance charges

Foreign exchange loss on loans

Unwinding of discount

Amortisation of deferred borrowing costs

Finance costs from continuing operations

Finance costs from discontinued operations (Note 34)

f) Depreciation and amortisation

Property, plant and equipment

Mine properties

Less: depreciation capitalised

Depreciation and amortisation expenses

Included in:

Costs of sales depreciation

Corporate depreciation

6,795

3,257

748

1,559

12,359

209

9,823

2,419

756

1,825

14,823

355

15,801

30,467

(91)

15,652

38,878

(580)

46,177

53,950

45,954

223

53,732

218

Notes to the Financial Statementswww.kingsgate.com.au67

2016
$’000

2015
$’000

18,024

7,178

25,202

457

20,386

8,503

28,889

583

227,564

461

115,650

9,888

228,025

125,538

(17,056)

22,643

2016
$’000

2015
$’000

309

(269)

14,465

(14,734)

(269)

(704)

1,355

651

(11,196)

12,551

1,355

g) Employee benefits expenses

Included in:

Cost of sales

Corporate and administration expenses

Total employee benefits expenses

h) Other items

Operating lease rentals

Total other items

i) Significant items

Impairment of Chatree Gold Mine

Impairment of capitalised exploration

Total significant items (pre-tax) from continuing operations

Total significant items (pre-tax) from discontinued operations (Note 34)

6. Income tax

Income tax expense
Current tax

Deferred tax

Income tax expense

Deferred tax expense/(benefit) included in tax expense comprises:

Increase in deferred tax assets

Increase in deferred tax liabilities

Deferred tax

Notes to the Financial StatementsNotes to the Financial Statementscontinuedu68

6. Income tax continued

b) Numerical reconciliation of income tax expense to prima facie tax payable

Loss from continuing operations before income tax

Profit/(loss) from discontinued operations before income tax

Total loss before income tax

Tax at Australian rate of 30%

Tax effect of amounts not deductible/assessable in calculating taxable income
Non-deductible expenses

Non-deductible amortisation

Non-deductible interest expense to preference shareholders

Share-based payment remuneration

Share of loss of associate

Difference in Thailand tax rates

Non-temporary differences affecting the tax expense

Tax benefit of tax losses not brought to account in the prior year recognised this year

Tax benefit of tax losses not brought to account

Temporary difference adjustment (Thailand)

Other temporary difference adjustment

impairment of Chatree Gold Mine

impairment reversal of Bowdens Silver Project

impairment of exploration

Income tax expense

2016
$’000

2015
$’000

(267,431)

37,980

(229,411)

(68,823)

(134,006)

(13,637)

(147,643)

(44,293)

468

129

364

100

–

(3,620)

6,719

1,046

271

68,269

(4,994)

111

1,037

1,762

361

123

(1,968)

417

–

33,419

6,793

2,966

651

Kingsgate’s Thai controlled entity Akara Resources Public Company Limited (“Akara”) received on 18 June 2010 approval from The Royal Thai Board of
Investment (“BOI”) for promotion of the Chatree North gold processing plant. Based on annual production limit from the new processing plant of 185,200
ounces of gold and 1,080,400 ounces of silver, Akara is entitled to:

a. an eight year tax holiday on income derived from the new processing plant with tax savings limited to the capital cost of the new treatment plant;
b. 25% investment allowance on the capital cost of certain assets of the new processing plant; and
c. other benefits.

The start of the promotion period was 1 November 2012.

c) Tax recognised in other comprehensive income

Foreign exchange losses recognised directly in foreign currency translation reserves

Total tax recognised in other comprehensive income

d) Deferred tax liabilities offset

Deferred tax liabilities amounting to $11,007,000 (2015: $28,795,000) have been offset against deferred tax assets.

2016
$’000

2015
$’000

–

Notes to the Financial Statementswww.kingsgate.com.au69

2016
$’000

2015
$’000

301,841

502

1,278

277,098

1,443

38,293

303,621

316,834

90,7031

95,050

e) Unrecognised deferred tax assets and tax liabilities

Tax losses – Australian entities

Tax losses – other entities

Temporary difference

Subtotal

Unrecognised deferred tax assets

Amount excludes potential deductible temporary differences in respect of Akara for $45,350,000 arising from an impairment charge recognised during the year.
It is not probable that there will be sufficient future assessable income available against which this deferred tax asset could be utilised.

As at 30 June 2016 Akara has undistributed earnings of $20,604,000 which, if paid out as dividends, and if not paid out from one of the BOI activity, would
be subject to withholding tax in the hands of its Australian parent entity.

f) Tax consolidation group
Kingsgate Consolidated Limited and its wholly owned Australian subsidiary have implemented the tax consolidation legislation as of 1 July 2003. The accounting
policy in relation to this legislation is set out in Note 2d.

On adoption of the tax consolidation legislation, the entities in the tax-consolidation group entered into a tax sharing agreement which, in the opinion of the
Directors, limits the joint and several liabilities of the wholly owned entities in the case of default by the head entity, Kingsgate Consolidated Limited.

The entities have also entered into a tax funding agreement under which the wholly owned entities fully compensate Kingsgate for any current tax payable
assumed and are compensated for any current tax receivable and deferred assets relating to the unused tax losses or unused tax credits that are transferred to
Kingsgate under the tax legislation. The funding amounts are determined by reference to the amounts recognised in the wholly owned entities’ financial
statements.

The amount receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as
practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax
instalments.

Recognised deferred tax assets
and liabilities

2016
$’000

2015
$’000

2016
$’000

2015
$’000

2016
$’000

2015
$’000

Assets

Liabilities

Net

Deferred tax assets/(liabilities):

Employee benefits

Provision for restoration and rehabilitation

Unrealised exchange (gains)/losses

Other items

Available-for-sale financial assets

Mine properties and exploration

Tax losses

Total deferred tax assets/(liabilities)

Set off tax

Net deferred tax assets/(liabilities)

Deferred tax assets/(liabilities) expected to be recovered
within 12 months

Deferred tax assets/(liabilities) expected to be recovered
after more than 12 months

Total deferred tax assets/(liabilities)

158

–

5,722

631

660

–

3,836

1,009

2,368

5,198

472

417

19,331

–

(10,824)

(302)

–

(9,677)

(164)

–

(19,342)

158

–

(5,102)

329

660

–

3,836

11,007

(11,007)

28,795

(28,795)

(11,126)

11,007

(29,183)

28,795

–

208

10,799

11,007

–

131

28,664

28,795

(119)

(388)

–

(23)

(11,126)

(29,160)

(11,126)

(29,183)

(119)

–

(119)

208

(327)

(119)

1,009

2,368

(4,479)

308

417

(11)

–

(388)

–

(388)

108

(496)

(388)

Notes to the Financial StatementsNotes to the Financial Statementscontinuedu70

6. Income tax continued

Movement in deferred tax balances

2016

Deferred tax assets/(liabilities):

Employee benefits

Provision for restoration and rehabilitation

Unrealised exchange losses

Other items

Available-for-sale financial assets

Mine properties and exploration

Tax losses

Net deferred tax assets/(liabilities)

2015

Deferred tax assets/(liabilities):
Derivatives

Employee benefits

Provision for restoration and rehabilitation

Provision for obsolescence

Unrealised exchange losses

Other items

Available-for-sale financial assets

Mine properties and exploration

Net deferred tax assets/(liabilities)

Balance at
1 July

Recognised in
profit or loss

Recognised
in other
comprehensive
income

Foreign
exchange

Balance at
30 June

1,009

2,368

(4,479)

308

417

(11)

–

(388)

189

1,814

4,774

348

521

419

(7,509)

577

(851)

(2,368)

(623)

243

(12)

3,836

246

(189)

(909)

(2,724)

(390)

(4,500)

(263)

(2)

7,622

(1,355)

–

104

318

–

(124)

390

158

–

(5,102)

329

660

–

3,836

(119)

–

1,009

2,368

–

(4,479)

308

417

(11)

(388)

2016
$’000

2015
$’000

36,301

7,004

43,318

–

55,451

–

55,472

6,601

7. Cash and cash equivalents and restricted cash

Current
Cash on hand

Deposits at call

Restricted cash

Total current

Non-current
Restricted cash

Total non-current

Cash on hand

These are petty cash balances held by subsidiaries.

Restricted cash

Risk exposure

Deposits at call

These deposits are at call, interest bearing and
may be accessed daily.

Under the terms of the loan facilities (see Note
16), the Group is required to maintain a
minimum cash balance of US$5,000,000 in
respect of Akara.

The Group’s exposure to interest rate risk and a
sensitivity analysis for financial assets and
liabilities are disclosed in Note 28.

Notes to the Financial Statementswww.kingsgate.com.au8. Receivables

Current
Trade receivables

Other debtors

Financial assets measured at fair value through profit or loss (Bowdens receivable)

Total receivables – current

Non-current
Other debtors

Total receivables – non-current

2016
$’000

2015
$’000

–

7,273

5,000

12,273

4,015

1,448

17,691

–

19,139

–

Trade receivables

Other debtors

Risk exposure

Trade receivables represent gold sales at the end
of the financial year, where payment was yet to
be received.

Other debtors mainly relate to GST/VAT receiv-
ables and receivables on sale of Challenger Gold
Mine and Bowdens Silver Project (see Note 34).

The Group’s exposure to credit and currency
risks are disclosed in Note 28.

9. Inventories

Current
Raw materials and stores

Livestock

Stockpiles and work in progress

Gold bullion

Provision for obsolescence

Impairment*

Total inventories – current

Non-current
Stockpiles

Total inventories – non-current

* Impairment relates to ore stockpiles and work in progress at Chatree Gold Mine (see Note 14).

10. Other assets

Current
Prepaid mining services

Prepayments

Other deposits

Total other assets – current

Non-current
Prepayments

Other deposits

Total other assets – non-current

2016
$’000

2015
$’000

12,664

–

69,812

6,525

(4,763)

(58,178)

26,060

–

15,261

28,341

6,080

(2,617)

–

47,147

55,711

2016
$’000

2015
$’000

–

2,365

8,554

10,919

14,060

14,130

1,060

4,982

3,577

9,619

11,345

7,097

18,442

Notes to the Financial StatementsNotes to the Financial Statementscontinuedu72

10. Other assets continued

Prepayments
Non-current prepayments include prepaid
royalties and water rights in respect of the
Nueva Esperanza Gold/Silver Project in Chile.

Other deposits
Other deposits current includes cash held on
deposit with financial institutions that is
restricted to use on community projects in
Thailand and $4,118,000 of security deposits.

11. Available-for-sale financial assets

Equity securities – current
At the beginning of the financial year

Revaluation

At the end of the financial year

Equity securities – non-current
At the beginning of the financial year

Reclassification from investment in associate

Revaluation

At the end of the financial year

12. Property, plant and equipment

Opening balance
Cost

Accumulated depreciation and amortisation

Accumulated impairment

Net book amount

Year ended 30 June
Opening net book amount

Additions

Reclassified

Disposals

Disposal group*

Impairment

Depreciation and amortisation expense

Foreign currency differences

Closing net book amount

Cost

Accumulated depreciation and amortisation

Accumulated impairment

Net book amount

* Related to the sales of Challenger Gold Mine and Bowdens Silver Project (see Note 34).

2016
$’000

2015
$’000

1,350

(810)

540

–

270

960

120

1,350

2016
$’000

2015
$’000

365,349

(111,958)

(64,897)

320,915

(85,360)

(64,897)

188,494

170,658

188,494

170,658

619

(7,491)

(77)

(834)

(119,363)

(15,710)

(1,360)

5,315

(1,214)

(36)

–

(15,652)

29,423

44,278

188,494

263,453

(34,915)

(184,260)

365,349

(111,958)

(64,897)

44,278

188,494

Notes to the Financial Statementswww.kingsgate.com.au73

13. Exploration, evaluation and development

Exploration &
evaluation
$’000

Feasibility
expenditure
$’000

Mine
properties
$’000

Total
$’000

At 30 June 2014
Cost

Accumulated depreciation and amortisation

Accumulated impairment

Net book amount

Year ended 30 June 2015
Opening net book amount

Additions

Reclassified

Disposals

Impairment

Depreciation and amortisation expense

Foreign currency exchange differences

Closing net book amount

At 30 June 2015
Cost

Accumulated depreciation and amortisation

Accumulated impairment

Net book amount

Year ended 30 June 2016
Opening net book amount

Additions

Reclassified

Disposal groups *

Impairment

Depreciation and amortisation expense

Foreign currency exchange differences

Closing net book amount

At 30 June 2016
Cost

Accumulated depreciation and amortisation

Accumulated impairment

Net book amount

* Related to the sales of Challenger Gold Mine and Bowdens Silver Project (see Note 34).

48,024

–

(39,530)

151,861

–

(74,694)

649,556

(240,112)

(239,848)

849,441

(240,112)

(354,072)

8,494

77,167

169,596

255,257

8,494

1,283

–

77,167

13,173

1,530

–

(9,888)

(22,643)

–

991

880

–

8,875

78,102

169,596

25,032

(316)

(326)

(115,650)

(38,878)

24,595

255,257

39,488

1,214

(326)

(148,181)

(38,878)

34,461

64,053

143,035

50,298

–

(49,418)

175,439

–

(97,337)

720,474

(300,923)

(355,498)

946,211

(300,923)

(502,253)

880

78,102

64,053

143,035

880

(510)

–

(461)

–

78,102

5,816

601

–

1,436

64,053

29,710

7,400

(8,599)

(50,023)

(30,467)

(1,057)

143,035

35,617

7,491

(8,599)

(50,484)

(30,467)

379

85,955

11,017

96,972

39,991

160,649

–

(39,991)

(74,694)

327,638

(26,750)

(289,871)

528,278

(26,750)

(404,556)

–

85,955

11,017

96,972

Notes to the Financial StatementsNotes to the Financial Statementscontinuedu74

14.

Impairment assessment

For the purposes of assessing impairment,
assets are grouped at the lowest levels for which
there are separately identifiable cash inflows
which are largely independent of the cash
inflows from other assets or groups of assets
(cash generating units “CGUs”).

Methodology
An impairment is recognised when the carrying
amount exceeds the recoverable amount.

The recoverable amount of the Chatree Gold
Mine has been determined using a value in use
model and the Nueva Esperanza Gold/Silver
Project has been estimated using a fair value
less costs of disposal basis. The costs of disposal
have been estimated by management based on
prevailing market conditions.

The recoverable amounts of these CGUs has
been estimated based on discounted cash
flows using market based commodity price
and exchange rate assumptions, estimated
quantities of recoverable minerals, production
levels, operating costs and capital requirements,
based on latest life of mine plans.

The recoverable amount estimate for Nueva
Esperanza Gold/Silver Project is considered to
be level 3 fair value measurement (as defined
by accounting standards) as it is derived from
valuation techniques that include inputs that are
not based on observable market data. The Group
considers the inputs and the valuation approach
to be consistent with the approach taken by
market participants.

Significant judgements and assumptions
are required in making estimates of the
recoverable amounts. This is particularly so in
the assessment of long life assets. It should
be noted that the CGU recoverable amounts
are subject to variability in key assumptions
including, but not limited to, gold and silver
prices, currency exchange rates, discount
rates, production profiles and operating and
capital costs. A change in one or more of the
assumptions used to estimate the recoverable
amounts would result in a change in the CGU’s
recoverable amounts.

Key assumptions
In determining each key assumption,
management has used external sources of
information and utilised experts within the
Group to validate entity specific assumptions
such as reserves and resources. For both Chatree
and Nueva Esperanza, production and capital
costs are based on the Group’s estimate of
forecast geological conditions, capacity of

existing plant and equipment and future
production levels. This information is obtained
from external experts where applicable, inter-
nally maintained budgets, mine models and
project evaluations performed by the Group in
its ordinary course of business.

The table below summarises the key assump-
tions used in the carrying value assessments.

FY 2016
and
FY 2017

+FY 2018
long term
average

US$1,300

US$19

US$20

Gold
(US$ per ounce)

Silver
(US$ per ounce)

US$:THB
exchange rate

The Group receives long term forecast price data
from multiple externally verifiable sources when
determining its pricing forecasts. For the Nueva
Esperanza project, gold and silver prices
forecast that result in the recoverable amount
exceeding the book value are generally achieved
when the high end of the range is adopted.

The foreign exchange rates used in the models
are AUD/USD of 0.75 and USD/THB of 35.0
based on exchange rates current at period end.

Chatree Gold Mine

Nueva Esperanza
Gold/Silver Project

Discount
rate (%)

9.3%

8.5%

The Group has applied post-tax real discount
rates to discount the forecast future attrib-
utable post-tax cash flows. The equivalent
pre-tax nominal discount rates applied to
Chatree Gold Mine is 39% (the pattern of the
tax payments included in the impairment model
lead to a higher pre-tax rate) and to the Nueva
Esperanza Gold/Silver Project is 11.1%. The
post-tax discount rate applied to the future cash
flow forecasts represent an estimate of the rate
the market would apply having regard to the
time value of money and the risks specified to
the asset for which the future cash flow
estimate have not been adjusted.

Chatree Gold Mine

In accordance with AASB 136 – Impairment of
Assets an impairment charge of $227,564,000
has been made against the carrying value of the
Chatree Gold Mine (“Chatree”). This reduction in
carrying value reflects the shortened Chatree
mine life arising from the implementation during
2016 of a policy resolution by the Thai
Government requiring all gold mining activity in
Thailand to cease by 31 December 2016.

The recoverable amount of Chatree at 30 June
2016 was determined based on a value in use
model. Based on the assumptions noted above,
the recoverable amount of Chatree as at 30 June
2016 is assessed as being equal to its carrying
amount of $35,080,000 after impairment.

The key assumptions to which the models is
most sensitive includes:
〉〉 gold and silver prices;
〉〉

foreign exchange rates; and

〉〉 production costs.

Nueva Esperanza Gold/Silver Project

The recoverable amount of Nueva Esperanza at
30 June 2016 was determined based on a fair
value less costs of disposal model. Based on the
assumption noted above, the fair value of Nueva
Esperanza as at 30 June 2016 is assessed as
being approximately equal to its carrying value
of $98,878,000 resulting in no impairment.

The key assumptions to which the model is most
sensitive includes:
〉〉 gold and silver prices;
〉〉 production and capital costs;
〉〉 discount rate; and
〉〉

reserves and resources.

Sensitivity analysis

After effecting the impairment for the Chatree
Gold Mine CGU, the recoverable amount of
these assets is assessed as being equal to their
carrying amount as at 30 June 2016.

Any variation in the key assumptions used to
determine the recoverable amount would result
in a change of the estimated recoverable
amount. If the variation in assumption had a
negative impact on the recoverable amount it
could indicate a requirement for additional
impairment of non-current assets.

Notes to the Financial Statementswww.kingsgate.com.au75

It is estimated that the following reasonably possible changes in the key assumptions would have the following approximate pre-tax impact
on the recoverable amount of each CGU as at 30 June 2016:

US$100/oz increase/decrease in gold price

US$1 increase/decrease in silver price

THB1.5 increase in US$: THB exchange rate

THB1.5 decrease in US$: THB exchange rate

5% increase/decrease in operating costs

5% increase/decrease in capital expenditure

Chatree Gold Mine
$’000

Nueva Esperanza
Gold/Silver Project
$’000

6,011

515

2,680

(2,449)

2,689

–

15,676

25,889

n/a

19,248

10,797

In respect of Nueva Esperanza, as the recoverable amount only marginally exceeds the carrying amount, applying any negative sensitivity to the cash flow
forecasts would result in an impairment charge at 30 June 2016.

It must be noted that each of the sensitivities above assumes that the specific assumption moves in isolation, whilst all other assumptions are held constant.
In reality, a change in one of the aforementioned assumptions may accompany a change in another assumption which may have an offsetting impact. Action
is also usually taken to respond to adverse changes in economic assumptions that may mitigate the impact of any such change.

15. Payables

Current
Trade payables

Other payables and accruals

Total payables – current

Non-current
Other payables

Total payables – non-current

The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 28.

2016
$’000

2015
Restated
$’000

12,342

8,971

21,313

4,074

18,095

9,249

27,344

7,171

Notes to the Financial StatementsNotes to the Financial Statementscontinuedu76

16. Borrowings

This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings.
For more information about the Group’s exposure to interest rate and liquidity risk, see Note 28.

2016
$’000

2015
$’000

Current
Secured bank loans

Preference shares in controlled entity

Finance lease liabilities

Other loan

Total borrowings – current

Non-current
Secured bank loans

Preference shares in controlled entity

Finance lease liabilities

Total borrowings – non-current

Borrowings
Secured bank loans

Preference shares in controlled entity

Finance lease liabilities

Other loan

Total borrowings

Secured bank loans
Terms and debt repayment schedule

Terms and conditions of outstanding loans were as follows:

Revolving Credit Facility

Multi-currency loan facilities

Less capitalised borrowing costs

Total

1
2
3
*

BBSY means bank bill swap bid rate
THBFIX means Thai Baht interest rate fixing
LIBOR means London interbank offered rate
classified as current liabilities at year end.

85,240

10,171

1,549

1,137

98,097

–

85,240

10,171

1,549

1,137

98,097

Currency

Nominal
interest

AUD

BBSY1 + margin

THAI BAHT

THBFIX2+ margin

USD

LIBOR3 + margin

Financial
year of
maturity

2017

*2019

Face value
$’000

10,000

30,585

44,723

54,971

10,870

398

1,313

67,552

73,427

1,562

75,071

128,398

10,952

1,960

1,313

142,623

Carrying
amount
$’000

10,000

30,585

44,723

(68)

85,240

Notes to the Financial Statementswww.kingsgate.com.au77

Revolving Credit Facility

Multi-currency loan facility

Kingsgate has a Revolving Credit Facility (“RCF”)
with $10 million drawn against this facility at
30 June 2016. A debt repayment of $5 million
was paid at the end of July 2016. The balance of
the RCF of $5 million is due for repayment at the
end of January 2017. As security the lender has a
fixed and floating charge over Kingsgate assets
including shares in its material subsidiaries.

Kingsgate, in addition, has available over the
tenure of the RCF an Equity-linked Loan Facility
(“ELF”) of $15 million. The ELF is currently
undrawn.

Kingsgate’s Thai operating subsidiary, Akara
Resources PCL (“Akara”), has an amortising
multi-currency loan facility which under the loan
facility agreement has less than three years
remaining following the commencement of
quarterly repayments in November 2013.
Subsequent to the Thai Government decision on
10 May 2016 that the Chatree Gold Mine would
only be able to continue to operate until
31 December 2016, a revised mine plan was
implemented which from the planned
production profile indicates the potential to
generate sufficient cash flow to repay this debt
in full by 31 December 2016. The outstanding
debt balance is classified as a current liability at

year end as it is expected to be repaid by
31 December 2016, and covenants under the
loan agreement were not met. No default notice
has been received from the financiers. At year
end the equivalent of $75.3 million was owed
against this facility and a further equivalent
$7.3 million has been repaid since year end.
As security against the facility the lender has
a fixed and floating charge over the land,
buildings, plant and equipment in Thailand
owned by Akara and its material subsidiaries.

Restricted funds

Under the terms of the loan facilities, Akara
is required to maintain a debt service reserve
account of US$5,000,000 ($7,004,000).

Preference shares in controlled entity

Terms and repayment schedule
Terms and conditions of outstanding preference shares in controlled entity were as follows:

Preference shares in controlled entity

Thai Baht

12%

n/a

10,238

11,394

Currency

Interest rate

Financial year
of maturity

Face value
$’000

Carrying amount
$’000

Finance lease liabilities

The Group has various items of plant and equipment with a carrying amount of $1,700,000 under finance leases.

Finance lease liabilities are payable as follows:

Within 1 year

Later than 1 year but not later than 5 years

Total

Future minimum
lease payments

$’000

1,700

–

1,700

Interest

$’000

151

–

151

Present value of minimum
lease payments

$’000

1,549

–

1,549

Notes to the Financial StatementsNotes to the Financial Statementscontinuedu78

17. Provisions

Current
Employee benefits

Restoration and rehabilitation

Total provisions – current

Non-current
Restoration and rehabilitation

Employee benefits

Total provisions – non-current

Movements in the restoration and rehabilitation provision:

Restoration and rehabilitation

At the beginning of the financial year

Revision of rehabilitation provision

Unwind of discount rate for provision

Disposal on sale of Challenger Gold Mine (see Note 34)

Foreign currency exchange differences

At the end of the financial year

Note

2x,24

18. Contributed equity

Opening balance

Share acquisition for the settlement of vested deferred rights

2016
Shares

2015
Shares

223,584,937

–

2016
$’000

2015
$’000

6,280

4,275

10,555

25,917

25,983

34,641

2,691

952

(7,851)

(241)

30,192

2016
$’000

677,109

(67)

3,625

–

3,625

34,641

4,585

39,226

27,731

2,215

981

–

3,714

34,641

2015
$’000

677,109

–

677,109

Closing balance

223,584,937

677,042

During the year, the Company acquired 98,000 shares in Kingsgate Consolidated Limited on market for consideration of $67,000. These shares were
distributed to rights holders as settlement of vested deferred rights.

Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so as to maintain a strong capital base
sufficient to maintain future exploration and development of its projects. In order to maintain or adjust the capital structure, the Group may return capital to
shareholders, issue new shares or sell assets. The Group’s focus over the financial year has been to utilise surplus cash from operations and asset sale to fund
capital investment at Chatree, working capital and exploration and evaluation activities, for the Nueva Esperanza Project in Chile and to repay borrowings.

Notes to the Financial Statementswww.kingsgate.com.au79

2016
$’000

45,234

9,056

(3,341)

50,949

48,234

(3,000)

45,234

9,008

9,056

(3,542)

201

(3,341)

2015
Restated
$’000

48,234

9,008

(3,542)

53,700

(12,530)

60,764

48,234

8,598

410

9,008

(4,380)

838

(3,542)

19. Reserves and accumulated losses

(a) Reserves

Foreign currency translation reserve

Share-based payment reserve

General reserve

Total reserves

Movements:
Foreign currency translation reserve

At the beginning of the financial year

Exchange differences on translation of foreign controlled entities (net of tax)

At the end of the financial year

Share-based payment reserve
At the beginning of the financial year

Share-based payment expense

At the end of the financial year

General reserve
At the beginning of the financial year

Net change

At the end of the financial year

Foreign currency translation reserve

Exchange differences arising on translation of the foreign controlled entities are taken to the foreign currency translation reserve, as described in Note 2b.

Share-based payment reserve

The share-based payment reserve is used to recognise the fair value of deferred rights, performance rights and options issued but not exercised.

General reserve

The general reserve represents changes in equity as a result of changes in non-controlling interests in prior periods and revaluation of employee benefit
obligations in current year.

(b) Accumulated losses

Accumulated losses at the beginning of the year

Net loss attributable to members of Kingsgate Consolidated Limited

Accumulated losses

2016
$’000

2015
$’000

(406,176)

(229,451)

(258,533)

(147,643)

(635,627)

(406,176)

Notes to the Financial StatementsNotes to the Financial Statementscontinuedu80

20. Commitments for expenditure

Operating leases
Within one year

Later than one year but not later than five years

Total operating leases

Exploration commitments
Within one year

Total exploration commitments

21. Controlled entities

Entity

Parent Entity
Kingsgate Consolidated Limited

Subsidiaries
Dominion Mining Ltd

Gawler Gold Mining Pty Ltd

Dominion Metals Proprietary Ltd

Kingsgate Treasury Pty Ltd

Kingsgate Capital Pty Ltd
Kingsgate Chile NL1
Laguna Exploration Pty Ltd

Akara Resources Public Company Limited

Issara Mining Limited

Suan Sak Patana Ltd

Phar Mai Exploration Ltd

Richaphum Mining Ltd

Phar Lap Ltd

Phar Rong Ltd

Asia Gold Ltd

Dominion (Lao) Co., Ltd

Laguna Chile Ltda

2016
$’000

2015
$’000

343

373

716

–

465

706

1,171

1,400

Equity holding

Country of
Incorporation

Class of
shares

2016
%

2015
%

Australia

Thailand

Mauritius

Laos

Chile

Ordinary

100

Laguna Resources NL changed its name to Kingsgate Chile NL on 12 August 2015.

22. Dividends

No final dividend was declared for the year ended 30 June 2015 (30 June 2014: nil).

No interim dividend was declared for the year ended 30 June 2016 (30 June 2015: nil).

23. Related parties

Transaction with related parties

Information on remuneration of Directors and Key Management Personnel is disclosed in Note 29 and the Remuneration Report.

Controlling entity

The ultimate parent entity of the Group is Kingsgate Consolidated Limited.

Notes to the Financial Statementswww.kingsgate.com.au81

24. Employee benefits and share-based payments

Employee benefits and related on-costs liabilities

Provision for employment benefits – current

Provision for employee benefits – non-current

Total employee provisions

2016
$’000

2015
$’000

6,280

6,346

3,625

4,585

8,210

Superannuation
The Group makes contributions on behalf of employees to externally managed defined contribution superannuation funds. Contributions are based on
percentages of employee wages and salaries and include any salary-sacrifice amounts. Contributions to defined contribution plans for 2016 were $1,423,000
(2015: $1,869,000).

Retirement benefit and other long-term benefits (Akara Resources PCL)

Opening balance

Service costs

Interest

Actuarial gain

Benefits paid

Foreign currency exchange differences

Closing balance

The principal actuarial assumptions used were as follows:

Discount rate

Inflation rate

2016
$’000

4,091

1,637

145

–

(405)

(51)

5,417

2015
$’000

4,190

293

111

(993)

(221)

711

4,091

4.1%

Executive Rights Plan
On 1 July 2012, the Company introduced an Executive Rights Plan which involves the grant of two types of rights being performance rights and deferred
rights. Subject to the satisfaction of the performance condition at the end of a three year measurement period in respect of performance rights and the
service condition at the end of the three year vesting period in respect of deferred rights, the rights will vest. The first $1,000 of value per individual award
is settled by cash with the balance settled by shares.

Performance rights
Kingsgate issued the following performance rights during financial year 2013/2014:

Performance rights

Grant date

7/13 November 2013

26 November 2013

Vesting date

1 July 2016

Number

479,643

768,380

The Executives Rights Plan entitles participants to receive rights to fully paid ordinary shares in the Company (Performance Rights). The performance
measures for the Performance Rights issued in the 2013 and 2014 financial years is subject to a hurdle derived from a three year vesting period using the
internal performance measuring metric, TSR Alpha™. This measure is based on total shareholder return over that vesting period.

The fair value of the performance rights was estimated using Monte Carlo simulations, taking into account the terms and conditions upon which the awards
were granted.

Notes to the Financial StatementsNotes to the Financial Statementscontinuedu82

24. Employee benefits and share-based payments continued

The following table lists the inputs to the model used for the performance rights granted for the year:

Number of rights issued
Grant date

Spot price ($)

Risk-free rate (%)

Term (years)

Volatility (%)

Exercise price

Fair value ($)

479,643
7/13 November 2013

768,380
26 November 2013

1.24

2.9

2.6

60–65

–

1.24

2.9

2.6

60–65

–

0.72–0.75

The volatility above was determined with reference to the historical volatility of the Company’s share price from June 2008 to November 2013.

The outstanding balance of the performance rights is summarised in the table below:

Outstanding balance at the beginning of the year

Performance rights granted during the year

Vested during the year

Lapsed during the year

Forfeited during the year

Outstanding balance at the end of the year

Deferred rights
Kingsgate issued the following deferred rights during financial year 2013/2014:

2016
Number

507,202

–

(92,045)

(144,268)

270,889

2015
Number

695,097

–

(187,895)

507,202

Deferred rights

Total

Grant date

Vesting date

Fair value

Number

7 November 2013

13 November 2013

4 November 2013

1 July 2016

$1.47

$1.34

$1.39

215,874

63,241

49,407

328,522

The fair value of the deferred rights was estimated based on the share price less the present value of projected dividends over the expected term of each
deferred right using Monte Carlo simulations model.

The following table lists the inputs to the model used for the deferred rights granted for the year:

Number of rights issued
Grant date

Spot price ($)

Term (years)

Dividends ($)

215,874
7 November 2013

63,241
13 November 2013

49,407
4 November 2013

$1.47

2.6

–

$1.34

2.6

–

$1.39

2.6

–

Notes to the Financial Statementswww.kingsgate.com.au83

The outstanding balance of the deferred rights is summarised in the table below:

Outstanding balance at the beginning of the year

Deferred rights granted during the year

Vested during the year

Lapsed during the year

Forfeited during the year

Outstanding balance at the end of the year

2016
Number

236,637

–

(52,842)

–

(72,135)

111,660

2015
Number

560,502

–

(99,308)

–

(224,557)

236,637

Employee Share Option Plan
On 29 April 2016, Kingsgate granted 1,500,000 employee options. The terms of the options issued pursuant to the plan are as follows:
〉〉

Each option will entitle the holder to subscribe for one ordinary share of the Company;

〉〉 Options are granted under the plan for no consideration; and
〉〉 Options granted under the plan carry no dividend or voting rights.

Balance
start of year

Granted
during year

Expired
during year

Balance
end of year

Vested and
exercisable at
end of year

Grant date

Expiry date

Exercise price

Number

29 Apr 2016

30 June 2019

30 June 2020

30 June 2021

$0.40

$0.50

$0.60

–

Number

500,000

Number

–

500,000

–

Fair value of options granted

The fair value at grant date of the options is determined using the Black-Scholes option pricing model which incorporates the following inputs:

Number of options issued
Term (years)

Exercise price ($)

Dividend yield ($)

Spot price ($)

Volatility (%)

Risk free rate (%)

Fair value ($)

Outstanding balance at the beginning of the year

Options granted during the year

Vested during the year

Lapsed during the year

Forfeited during the year

500,000
3.17

0.40

–

0.455

65–75

1.86

0.23

–

500,000

–

500,000
4.17

0.50

–

0.455

65–75

1.85

0.24

–

500,000

–

500,000
5.17

0.60

–

0.455

65–75

1.85

0.22

–

500,000

–

Outstanding balance at the end of the year

500,000

The volatility above was determined with reference to the historical volatility of the Company’s share price from April 2013 to April 2016.

Notes to the Financial StatementsNotes to the Financial Statementscontinuedu84

25. Reconciliation of loss after income tax to net cash flow

from operating activities

Loss for the year

Depreciation and amortisation

Share-based payments

Impairment

Unwind of discount rate for provision

Amortisation of deferred borrowing costs

Unrealised losses/(gains)

Share of associate’s loss

Net exchange differences

Change in operating assets and liabilities:

(Increase)/decrease in receivables

(Increase)/decrease in prepayments

(Increase)/decrease in inventories

Increase/(decrease) in current tax liabilities

Increase/(decrease) in creditors

Increase/(decrease) in provisions

Increase/(decrease) in deferred tax liabilities

Net cash inflow from operating activities

2016
$’000

(229,451)

46,177

210,969

952

1,559

810

–

123

9,039

3,736

13,622

–

(9,244)

(1,578)

(269)

2015
Restated
$’000

(147,643)

53,950

410

148,181

1,104

1,825

(743)

112

448

(3,263)

14,328

10,875

(1,284)

(2,418)

(201)

965

46,693

76,646

26. Events occurring after reporting date

No other matter or circumstance has arisen since 30 June 2016 that has significantly affected, or may significantly affect:

〉〉

the Group’s operations in future financial years;

the results of those operations in future financial years; or

the Group’s state of affairs in future financial years.

27. Contingent liabilities

The Group had contingent liabilities at 30 June 2016 in respect of guarantees. Bank guarantees have been given by Kingsgate’s controlled entities to partici-
pating banks in the loan facility and corporate loan facility as described in Note 16 as part of the security package. The corporate loan guarantee may give
rise to liabilities in the parent entity if the controlled entities do not meet their obligations under the terms of the loans subject to guarantees. No material
losses are anticipated in respect of the above contingent liabilities.

28. Financial risk management and instruments

The Group’s activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk, fair value risk and interest rate risk), credit
risk and liquidity risk.

At this point, the Directors believe that it is in the interest of shareholders to expose the Group to foreign currency risk, price risk (except in specific
circumstances) and interest rate risk. Therefore, the Group does not employ any derivative hedging of foreign currency or interest rate risks. The Group has
entered into forward gold sale contracts to manage Australian gold price risk in respect of the forecast production from the Challenger Gold Mine and US$
gold price risk in respect of the forecast production from Chatree. No forward gold sale contracts were in place at year end (refer to “commodity price risk”).
The Directors and management monitors these risks, in particular market forecasts of future movements in foreign currency and price movements and, if it
is to be believed to be in the best interests of shareholders, will implement risk management strategies to minimise potential adverse effects on the financial
performance of the Group.

Risk management is carried out by the senior executive team. The Board provides written principles for overall risk management, as well as policies covering
specific areas, such as foreign exchange risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of
excess liquidity.

Notes to the Financial Statementswww.kingsgate.com.au85

2016
$’000

36,314

16,288

7,004

540

8,624

68,770

2015
Restated
$’000

55,472

19,139

6,601

1,350

10,674

93,236

(25,387)

(98,097)

(34,515)

(144,092)

(123,484)

(178,607)

The Group holds the following financial instruments:

Financial assets
Cash and cash equivalents

Receivables

Restricted cash

Available-for-sale financial assets

Other financial assets

Total financial assets

Financial liabilities
Payables

Borrowings

Total financial liabilities

Market risk
Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from currency exposures, primarily with respect to the US dollar and Thai
Baht and as discussed earlier, no financial instruments are employed to mitigate the exposed risks. This is the Group’s current policy and it is reviewed
regularly including forecast movements in these currencies by management and the Board. Currently foreign exchange risks arise primarily from:
〉〉

the sale of gold, which is in US dollars;
〉〉 payables denominated in US dollars; and
〉〉

cash balances in US dollars.

The functional currency of the Thai subsidiaries is Thai Baht. The Company’s functional currency is Australian dollars.

The Group’s exposure to US dollar foreign currency risk at the reporting date was as follows:

Cash and cash equivalents

Restricted cash

Receivables

Payables

Total exposure to foreign currency risk

2016
$’000

2015
$’000

1,819

7,004

(4,493)

4,389

2,074

6,601

(3,242)

5,471

The Group’s sale of gold produced from Chatree Gold Mine and part of the multi-currency loan facilities (see Note 16) are in US dollars, however the functional
currency of the subsidiary company that owns Chatree Gold Mine is Thai Baht and therefore, the Group’s profit is sensitive to movement in those currencies.

The Group’s current exposure to other foreign exchange movements is not material.

One cent weakened in Australian dollar against the US dollar

One cent strengthened in Australian dollar against the US dollar

Impact on post tax loss

2016
$’000

1,743

(1,743)

2015
$’000

1,739

(1,739)

Impact on other
comprehensive income

2016
$’000

2015
$’000

–

Notes to the Financial StatementsNotes to the Financial Statementscontinuedu86

28. Financial risk management and instruments continued

Commodity price risk
As at 30 June 2016, no forward gold sale contracts were in place at year end.

As at 30 June 2016
Within one year

As at 30 June 2015
Within one year

Gold for
physical delivery
ounces

Contracted sales
price
A$/oz

Value of
committed sales
$’000

–

5,000

1,538

7,693

The following table displays fluctuations in the fair value of the Group’s gold forward contracts due to movements in the spot price of gold with all other
variables held constant. The 10% sensitivity is based on reasonable possible changes, over a financial year, using the observed range of actual historical prices.

Mark to market movement of the fair value of gold forward contracts

10% increase in the spot price of gold (2015: 10%)

10% decrease in the spot price of gold (2015: 10%)

2016
$’000

2015
$’000

–

(804)

741

Equity price risk
The Group is exposed to equity securities price risk, which arises from investments classified on the statement of financial position as available-for-sale
financial assets.

A 10% increase/decrease of the share price for the equity securities at 30 June 2016 would have increased/(decreased) profit/equity by the amounts shown as
follows:

Available-for-sale financial asset – 2016

Available-for-sale financial asset – 2015

+10%

-10%

Profit
$’000

Equity
$’000

Profit
$’000

Equity
$’000

135

–

(54)

(135)

–

Notes to the Financial Statementswww.kingsgate.com.au87

Interest rate risk
The Group’s exposure to interest rate risk for classes of financial assets and financial liabilities, at 30 June 2016 and 30 June 2015 are set out as follows:

Fixed interest maturing in

Floating
interest rate
$’000

1 year or less
$’000

1–2 years
$’000

2–5 years
$’000

Non-interest
bearing
$’000

Total
$’000

2016
Financial assets
Cash and cash equivalents

Receivables

Restricted cash

Available-for-sale financial assets

Other financial assets

Total financial assets

Financial liabilities
Payables

Borrowings

Total financial liabilities

Net financial liabilities

2015 Restated
Financial assets
Cash and cash equivalents

Receivables

Restricted cash

Available-for-sale financial assets

Other financial assets

Total financial assets

Financial liabilities
Payables

Borrowings

Total financial liabilities

Net financial liabilities

36,303

–

7,004

–

8,316

51,623

–

(87,859)

(10,171)

(87,859)

(10,171)

(36,236)

(10,171)

55,451

–

6,601

–

10,268

72,320

–

(129,866)

(12,582)

(129,866)

(12,582)

(57,546)

(12,582)

(472)

(1,090)

16,288

–

540

308

36,314

16,288

7,004

540

8,624

17,147

68,770

(25,387)

(67)

(25,387)

(98,097)

(25,454)

(123,484)

(8,307)

(54,714)

19,139

–

1,350

406

20,916

55,472

19,139

6,601

1,350

10,674

93,236

(34,515)

(82)

(34,515)

(144,092)

(34,597)

(178,607)

(13,681)

(85,371)

The weighted average rate on floating rate borrowings was 4.18% for the year ended 30 June 2016 (2015: 4.67%).

A change of 100 basic points (“bps”) in interest rate at the reporting date would have increased/decreased profit or loss by the amounts shown below. This
analysis assumes that all other variables, in particular foreign exchange rates remain constant.

Notes to the Financial StatementsNotes to the Financial Statementscontinuedu88

28. Financial risk management and instruments continued

Variable rate instrument – 2016

Variable rate instrument – 2015

100 bps increase
Profit
$’000

100 bps decrease
Profit
$’000

853

1,299

(853)

(1,299)

Credit risk
Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, as well as credit exposures to customers including,
outstanding receivables and committed transactions.

The Group has no significant concentrations of credit risk. The sale of gold and other cash equivalents are limited to counterparties with sound credit ratings.

The maximum exposure to credit risk is represented by the carrying value of the Group’s financial assets in the statement of financial position. The maximum
exposure to credit risk at reporting date was:

Cash and cash equivalents

Receivables

Restricted cash

Other financial assets

Total exposure to credit risk at year end

2016
$’000

36,314

16,288

7,004

8,624

68,230

2015
$’000

55,472

19,139

6,601

10,674

91,886

Liquidity risk
The Group’s liquidity requirements are based upon cash flow forecasts which are based upon forward production, operations, exploration and capital projec-
tions. Liquidity management, including debt/equity management, is carried out under policies approved by the Board and forecast material liquidity changes
are discussed at Board meetings. The following table analyses the Company’s financial assets and liabilities into relevant maturity groupings base on the
remaining period at the reporting date. The amounts disclosed are the contractual undiscounted cash flows. The borrowings of the Group are repayable on
demand, however the contractual amounts for borrowings also include the interests that are expected to be repaid until the repayment of these debts based
on the cash flow forecast prepared by the Group.

2016
Payables

Borrowings

Total financial liabilities 2016

2015 (Restated)
Payables

Borrowings

Total financial liabilities 2015

Carrying
amount
$’000

1 year
or less
$’000

1–2 years
$’000

2–5 years
$’000

More than
5 years
$’000

Total
$’000

25,387

98,097

123,484

34,515

144,092

178,607

21,313

100,610

121,923

27,344

73,379

100,723

–

952

32,502

33,454

4,074

–

4,074

5,741

47,389

53,130

–

774

–

774

25,387

100,610

125,997

34, 811

153,270

188,081

Notes to the Financial Statementswww.kingsgate.com.au89

Fair value measurements
The carrying value of financial assets and liabilities of the Group approximate their fair values. Fair values of financial assets and liabilities have been deter-
mined for measurement and/or disclosure purposes. Refer to Note 14 for details of impairment of Level 3 assets.

Fair value hierarchy

The Group classifies assets and liabilities carried at fair value using a fair value hierarchy that reflects the significance of the inputs used in determining that
value. The table following analyses financial instruments carried at fair value, by the valuation method. The different levels in the hierarchy have been defined
as follows:
〉〉

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;

〉〉

Level 2:

Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as process) or indirectly
(derived from prices); and

〉〉

Level 3:

Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Level 1
$’000

Level 2
$’000

Level 3
$’000

Total
$’000

540

–

1,350

–

5,000

540

5,000

–

1,350

30 June 2016
Available-for-sale financial assets

Receivable

30 June 2015
Available-for-sale financial assets

29. Key Management Personnel disclosures

Chairman

Ross Smyth-Kirk

Non-Executive Chairman

Non-Executive Directors

Peter Alexander

Non-Executive Director

Peter McAleer

Non-Executive Director

Sharon Skeggs

Non-Executive Director

Peter Warren

Non-Executive Director

Key Management Personnel

Greg Foulis

Ross Coyle

Chief Executive Officer

Chief Financial Officer and Company Secretary – Appointed Company Secretary 7 December 2015

Tim Benfield

Chief Operating Officer – Ceased employment 9 August 2016

Alistair Waddell

General Manager Corporate Development – Commenced 1 April 2016

Ron James

Paul Mason

General Manager Exploration – Ceased employment 31 May 2016

Company Secretary – Resigned as Company Secretary 7 December 2015

Joel Forwood

General Manager Corporate and Markets – Ceased employment 30 September 2015

Notes to the Financial StatementsNotes to the Financial Statementscontinuedu90

Notes to the Financial Statements

29. Key Management Personnel disclosures continued

Key Management Personnel Compensation

Short-term employee benefits

Post-employment benefits

Termination benefits

Share-based payments

Other long term benefits

Total Key Management Personnel compensation

30. Auditors’ remuneration

Audit and other assurance services
PricewaterhouseCoopers Australian Firm

Audit and review of the financial reports

Related Practices of PricewaterhouseCoopers Australian Firm

Audit and review of the financial statements

Total remuneration for audit services

Other Services
PricewaterhouseCoopers Australian Firm

Other services

Related practices of PricewaterhouseCoopers Australian Firm

Transaction services (IPO)

Other services

Total remuneration for non-audit related services

Taxation services
PricewaterhouseCoopers Australian Firm

Tax compliance services

Related practices of PricewaterhouseCoopers Australian Firm

Tax compliance services

Total remuneration for tax related services

2016
$

2015
$

2,358,058

3,424,689

227,388

470,201

29,295

87,713

206,051

673,271

409,770

14,012

3,172,655

4,727,793

2016
$

2015
$

592,840

563,300

295,782

888,622

338,176

901,476

35,401

11,325

–

42,205

68,376

27,075

77,606

106,776

30,600

45,575

47,164

77,764

47,575

93,150

www.kingsgate.com.au91

2016
Cents

(118.1)

15.5

(102.6)

2015
Restated
Cents

(59.9)

(6.1)

(66.0)

$’000

(264,182)

34,731

(134,006)

(13,637)

Number

223,575,540

223,584,937

–

223,575,540

223,584,937

31. Loss per share

Basic and diluted loss per share from continuing operations

Basic and diluted loss per share from discontinued operations

Basic and diluted loss per share from continuing operations and discontinued operations

Net loss used to calculate basic and diluted earnings per share

Continuing operations

Discontinued operations

Weighted average number of ordinary shares used as the denominator: basic

Adjustment for dilutive effect

Weighted average number of ordinary shares used as the denominator: diluted

Diluted loss per share
As the Group made a loss for the year, diluted loss per share is the same as basic loss per share as the impact of dilution would be to reduce the loss per share.

32. Parent entity financial information

As at, and throughout the financial year ending 30 June 2016, the parent entity of the Group was Kingsgate.

Summary of financial information

Results of parent entity
Loss for the year

Other comprehensive loss

Total comprehensive loss

Financial position of parent entity at year end
Current assets

Total assets

Current liabilities

Total liabilities

Total equity of the parent entity comprising:
Issued capital

Reserve

Accumulated losses

Total equity

2016
$’000

2015
$’000

(18,303)

(36,777)

–

(18,303)

(36,777)

107,622

136,288

74,869

74,977

677,042

8,377

(624,108)

125,219

168,240

88,565

88,607

677,109

8,329

(605,805)

61,311

79,633

Notes to the Financial StatementsNotes to the Financial Statementscontinuedu92

32. Parent entity financial information continued

Contingent liabilities of the parent entity
Bank guarantees have been given by Kingsgate’s controlled entities to participating banks in the loan facility as described in Note 16 as part of the security
package.

The corporate loan facility guarantee may give rise to liabilities in the parent entity if the controlled entities do not meet their obligations under the terms of
the loans subject to guarantee. No material losses are anticipated in respect of the above contingent liabilities.

In addition, there are cross guarantees given by Kingsgate, Dominion Mining Limited and Gawler Gold Mining Pty Ltd as described in Note 33. No deficiencies
of assets exist in any of these companies. No liability was recognised by the parent entity or the group in relation to this guarantee, as the fair value of the
guarantees is immaterial.

As at 30 June 2016, the parent entity had no contractual commitments for the acquisition of property, plant or equipment.

33. Deed of cross guarantee

Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the wholly owned subsidiaries listed below are relieved from the Corporations Act
2001 requirements for preparation, audit and lodgement of financial reports, and Directors’ Reports.

It is a condition of the Class Order that the Company and each of the subsidiaries enter into a Deed of Cross Guarantee (“Deed”). The effect of the Deed is
that the Company guarantees to each creditor payment in full of any debt on the event of the winding up of any of the subsidiaries under certain provisions
of the Corporations Act 2001. If a winding up occurs under other provisions of the Corporations Act 2001, the Company will only be liable in the event that
after six months any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event that the Company is wound up.

The subsidiaries subject to the Deed are:
〉〉 Dominion Mining Limited;
〉〉 Challenger Gold Operations Pty Ltd*; and
〉〉 Gawler Gold Mining Pty Ltd.

* discontinued operation and exited closed group on 15 March 2016 (see Note 34).

The above companies represent a ‘closed group’ for the purpose of the Class Order, and as there are no other parties to the Deed of Cross Guarantee that are
controlled by Kingsgate Consolidated Limited, they also represent the ‘extended closed group’.

A consolidated income statement and other comprehensive income, a summary of movements in consolidated accumulated losses, and consolidated
statement of financial position, comprising the Company and controlled entities which are a party to the Deed, after eliminating all transactions between
parties to the Deed of Cross Guarantee, is set out as follows:

Notes to the Financial Statementswww.kingsgate.com.aus
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Income statement and other comprehensive income

Sales revenue

Costs of sales

Gross profit

Exploration expenses

Corporate and administration expenses

Other income and expenses

Foreign exchange gain/(loss)

Impairment losses – investment in Chatree Gold Mine

Impairment losses – investment in Bowdens Silver Project

Impairment losses – investment in Nueva Esperanza Gold/Silver Project

Impairment reversal – investment in Challenger Gold Mine

Write-off on loan to subsidiaries

Loss before financial costs and income tax

Finance income

Finance costs

Net finance costs

Loss before income tax

Income tax expense

Loss after income tax

Total comprehensive loss for the year

Loss attributable to:

Owners of Kingsgate Consolidated Limited

Total comprehensive loss attributable to:

Owners of Kingsgate Consolidated Limited

Summary of movements in consolidated retained earnings

Accumulated losses

Accumulated losses at beginning of the financial year

Loss for the year

Accumulated losses at end of the financial year

2016
$’000

78,916

(57,331)

2015
$’000

118,353

(105,697)

21,585

12,656

(80)

(10,196)

30,979

1,962

(2,091)

(9,217)

(6,750)

411

(41,180)

(143)

(9,436)

(1,293)

11,924

–

(23,921)

(19,026)

–

(14,577)

(29,239)

271

(4,337)

(4,066)

434

(4,480)

(4,046)

(18,643)

(33,285)

–

(18,643)

(33,285)

(18,643)

(33,285)

(18,643)

(33,285)

(18,643)

(33,285)

2016
$’000

2015
$’000

(603,242)

(18,643)

(569,957)

(33,285)

(621,885)

(603,242)

continuedu

Notes to the Financial Statements

33. Deed of cross guarantee continued

Statement of financial position

Assets
Current assets
Cash and cash equivalents

Receivables

Inventories

Other assets

Total current assets

Non-current assets
Property, plant and equipment

Exploration, evaluation and development

Investment in subsidiaries

Other assets

Total non-current assets

TOTAL ASSETS

Liabilities
Current liabilities
Payables

Borrowings

Provisions

Total current liabilities

Non-current liabilities
Payables

Provisions

Total non-current liabilities

TOTAL LIABILITIES

NET ASSETS

Equity
Contributed equity

Reserves

Accumulated losses

TOTAL EQUITY

2016
$’000

2015
$’000

30,356

78,950

–

543

37,981

104,888

4,541

725

109,849

148,135

–

28,528

28,666

562

906

39,153

1,559

42,180

138,515

190,315

63,452

11,069

352

71,139

26,140

3,100

74,873

100,379

108

74,981

63,534

–

7,740

108,119

82,196

677,042

8,377

(621,885)

677,109

8,329

(603,242)

63,534

82,196

www.kingsgate.com.au95

Notes to the Financial Statements

34. Discontinued operations

a . Accounting for discontinued operations
An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs of disposal. A gain is recog-
nised for any subsequent increases in fair value less costs of disposal of an asset (or disposal group), but not in excess of any cumulative impairment loss
previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date
of derecognition.

b . Details of discontinued operations

Challenger Gold Mine

On 30 October 2015, Kingsgate announced an Option Agreement was reached with a 50/50 Joint Venture between Diversified Minerals Pty Ltd and WPG
Resources Limited (“Purchasers”), whereby the Purchasers would acquire 100% of the Challenger Gold Mine and certain exploration licences for consideration
of $1,000,000 and a $25 per ounce revenue royalty on future production in excess of 30,000 ounces from the Challenger SSW Zone. The Option Agreement
was exercised on 11 December 2015. A Share Purchase Agreement was executed on 19 February 2016 and the sale was completed on 15 March 2016.

Bowdens Silver Project

On 25 February 2016, Kingsgate announced a Share Purchase Agreement was entered into to sell an 85% interest in the Bowdens Silver Project for a cash
consideration of $20 million to Silver Investment Holdings Australia Limited (“SIHA”). This arrangement was subsequently varied with SIHA agreeing to
purchase 100% of the project for a total consideration of $25 million. On 29 June 2016, the Company completed the sale of the project. At that date $5
million of the consideration was outstanding and is due to be paid by 30 September. If this is not paid by the due date the Company will retain 15% of the
project and revert to an unincorporated Joint Venture.

Challenger Gold Mine and Bowdens Silver Project were not previously classified as held-for-sale or as a discontinued operation. The comparative consolidated
statement of profit or loss and other comprehensive income has been restated to show the discontinued operation separately from continuing operations.

c . Results of the discontinued operations
The results of the discontinued operations for the year until disposal are presented below:

s
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Sales revenue

Cost of sales

Gross profit

Exploration expenses

Corporate and administration expenses

Other income and expenses

Reversal of impairment/(impairment)

Profit/(loss) before finance costs and income tax from discontinued operations

Finance income

Finance cost

Net finance costs

Profit before income tax

Income tax expense

Profit/(loss) after income tax from discontinued operations

Earnings per share for profit from discontinued operations

Basic earnings per share (Note 31)

Diluted earnings per share (Note 31)

2016
$’000

2015
$’000

78,916

(57,331)

118,354

(105,704)

21,585

12,650

(49)

(903)

467

17,056

38,156

(209)

(176)

37,980

(3,249)

34,731

Cents

15.5

(175)

(564)

(2,632)

(22,643)

(13,364)

(355)

(273)

(13,637)

–

(13,637)

Cents

(6.1)

continuedu

34. Discontinued operations continued

d . Cash flow information of the discontinued operations
The net cash flows of discontinued operations are as follows:

Net cash flows from operating activities

Net cash flows from investing activities

Net cash flows for the year

e . Details of the sale of the discontinued operations

Consideration

Carrying amount of net assets sold

Gain on sale before income tax

Income tax expense

Gain on sale after income tax

The carrying amounts of assets and liabilities of the discontinued operations as at the date of the sale were:

Receivables

Inventories

Exploration, evaluation and development

Property, plant and equipment

Other assets

Deferred tax asset

Provisions

Net assets

2016
$’000

13,610

(2,742)

10,868

2015
$’000

17,346

(2,986)

14,360

2016
$’000

26,000

(26,000)

–

2016
$’000

4,339

22,331

873

3,069

3,249

(7,896)

26,000

35. Correction of prior year error

The error, which relates to the non-provision by Akara (Kingsgate’s Thai operating subsidiary) of a community fund required under the metallurgical licence
applicable to the operation of the Chatree North processing plant, has been adjusted retrospectively by restating the comparative amounts for the prior
periods in which the errors occurred. As the prior period’s errors on the opening balance sheet at 1 July 2014 are considered immaterial, a third balance sheet
has not been included in the financial statements.

The impacts of this correction in the prior period are:
〉〉 Payables at 30 June 2015 has increased from $26,281,000 to $27,344,000 by $1,063,000;
〉〉 Reserves at 30 June 2015 has decreased from $53,793,000 to $53,700,000 by $93,000;
〉〉 Accumulated losses at 30 June 2015 has increased from $405,206,000 to $406,176,000 by $970,000;
〉〉 Cost of sales for the year ended 30 June 2015 has increased by $550,000 from $278,357,000 to $278,907,000; and
〉〉 Basic and diluted loss per share for the year ended 30 June 2015 has increased by $0.002 from $0.658 to $0.660.

There is no impact to the statement of cash flows for the year ended 30 June 2015.

Notes to the Financial Statementswww.kingsgate.com.au97

Directors’ Declaration

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Directors’
Declaration

In the Directors’ opinion:

the financial statements and notes that are set out on pages 50 to 96 and the Remuneration
Report in the Directors’ Report, are in accordance with the Corporations Act 2001, including:

(i)

(ii)

giving a true and fair view of the Group’s financial position as at 30 June 2016 and of its
performance for the financial year ended on that date; and

complying with Australian Accounting Standards, the Corporation Regulations 2001 and
other mandatory professional reporting requirements.

there are reasonable grounds to believe that the Company will be able to pay its debts as and
when they become due and payable; and

at the date of this declaration, there are reasonable grounds to believe that the members of the
extended closed group identified in Note 33 will be able to meet any obligations or liabilities to
which they are, or may become, subject by virtue of the Deed of Cross Guarantee described in
Note 33.

Note 1 confirms that the financial statements also comply with International Financial Reporting
Standards as issued by the International Accounting Standards Board.

The Directors have been given the declarations required by section 295A of the Corporations Act 2001
from the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2016.

This declaration is made in accordance with a resolution of the Directors.

Ross Smyth-Kirk
Director
Dated at Sydney on 31 August 2016
On behalf of the Board

Independent Auditor’s Report

Independent
Auditor’s Report

Independent auditor’s report to the members
of Kingsgate Consolidated Limited

Report on the financial report

We have audited the accompanying financial report of Kingsgate Consolidated Limited (the company), which comprises the
consolidated statement of financial position as at 30 June 2016, the consolidated statement of profit or loss and other compre-
hensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on
that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for Kingsgate
Group (the consolidated entity). The consolidated entity comprises the company and the entities it controlled at year’s end or
from time to time during the financial year.

Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in
accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors
determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to
fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial
Statements, that the financial statements comply with International Financial Reporting Standards.

Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with
Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit
engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material
misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The
procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the
financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant
to the consolidated entity’s preparation and fair presentation of the financial report in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

www.kingsgate.com.au99

Independent Auditor’s Report

Auditor’s opinion
In our opinion:

(a)

the financial report of Kingsgate Consolidated Limited is in accordance with the Corporations Act 2001, including:

(i)

a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the year
ended on that date; and

(ii)

complying with Australian Accounting Standards and the Corporations Regulations 2001.

(b)

the financial report and notes also comply with International Financial Reporting Standards as disclosed in Note 1.

Material uncertainty regarding continuation as a going concern
Without qualifying our conclusion, we draw attention to Note 1 in the financial report which indicates that the consolidated
entity’s main cash contributor, the Chatree Gold mine will only operate until 31 December 2016. Related external borrowings have
been therefore reclassified to current liabilities resulting in the consolidated entity having current liabilities exceeding its current
assets by $36,855,000 and having insufficient financial resources to fully fund its ongoing operations.

The continuing viability of the consolidated entity and its ability to continue as a going concern and meet its debts and commit-
ments as and when they fall due are dependent upon the consolidated entity being successful in generating sufficient positive
cash flows from the Chatree Gold mine until 31 December 2016 and the ongoing support of the external lenders of the Group.

These conditions, along with other matters as set out in Note 1, indicate the existence of a material uncertainty that may cast
significant doubt about the consolidated entity’s ability to continue as a going concern and, therefore, the consolidated entity
may be unable to realise its assets and settle its liabilities in the normal course of business and at the amounts stated in the
financial report.

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Report on the Remuneration Report

We have audited the remuneration report included in pages 31 to 47 of the directors’ report for the year ended 30 June 2016.
The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with
section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our
audit conducted in accordance with Australian Auditing Standards.

Auditor’s opinion
In our opinion, the remuneration report of Kingsgate Consolidated Limited for the year ended 30 June 2016 complies with section
300A of the Corporations Act 2001.

Matters relating to the electronic presentation of the audited financial report

This auditor’s report relates to the financial report and remuneration report of Kingsgate Consolidated Limited (the company) for
the year ended 30 June 2016 included on Kingsgate Consolidated Limited’s web site. The company’s directors are responsible for
the integrity of Kingsgate Consolidated Limited’s web site. We have not been engaged to report on the integrity of this web site.
The auditor’s report refers only to the financial report and remuneration report named above. It does not provide an opinion on
any other information which may have been hyperlinked to/from the financial report or the remuneration report. If users of this
report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the hard
copy of the audited financial report and remuneration report to confirm the information included in the audited financial report
and remuneration report presented on this web site.

PricewaterhouseCoopers

Brett Entwistle
Partner
Sydney
31 August 2016

100

Shareholder Information

Shareholder
Information

As at 30 September 2016

Distribution of equity securities

Size of Holding

1 – 1,000

1,001 – 5,000

5,001 – 10,000

10,001 – 100,000

100,001 +

Total

20 largest shareholders

20 largest shareholders of quoted ordinary shares

Shareholder

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
BNP Paribas Noms Pty Ltd < DRP >
Citicorp Nominees Pty Limited
Merrill Lynch (Australia) Nominees Pty Limited
National Nominees Limited
Arinya Investments Pty Ltd
Bruce Clayton Bird
Lujeta Pty Ltd
Elizabeth Aprieska
Ali Beydoun
Christopher Komor
Yandal Investments Pty Ltd
Peter Chapman
Maminda Pty Ltd
Bahulu Holdings Pty Ltd
ABN Amro Clearing Sydney Nominees Pty Ltd
SFB Investments Pty Limited
Chen Chen
Mediflex Industries Australia Pty Ltd

Number of
shareholders
of fully paid
ordinary shares

Number of
option holders

Number of
vested deferred
rights holders

5,082

3,992

1,269

1,671

151

12,165

–

Number of
shares

31,699,917
27,537,890
16,771,768
16,524,993
13,460,715
8,799,142
4,996,944
3,207,110
2,068,063
1,412,590
1,300,000
1,097,462
1,000,000
837,058
792,833
641,822
547,045
500,000
430,000
420,000

Percentage

14.18
12.32
7.50
7.39
6.02
3.94
2.23
1.43
0.92
0.63
0.58
0.49
0.45
0.37
0.35
0.29
0.24
0.22
0.19
0.19

www.kingsgate.com.au
Unquoted equity securities

There was one option holder holding 1,500,000 options.

There were three vested deferred rights holders holding 111,660 deferred rights.

Unquoted equity security holdings greater than 20%

Options
On 29 April 2016, Kingsgate granted 1,500,000 employee options.

101

Shareholder Information

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Grant Date

Expiry date

Exercise price

29 Apr 2016

30 June 2019

30 June 2020

30 June 2021

$0.40

$0.50

$0.60

Number

500,000

There were no persons holding more than 20% of deferred rights other than rights issued under the Executive Rights Plan.

Voting rights

a) Ordinary shares

On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote.

b) Options

No voting rights.

c) Deferred rights (vested)

No voting rights.

Notes to the Financial Statements

102

Corporate Information

Corporate
Information

Kingsgate Consolidated Limited
ABN 42 000 837 472

Bangkok Office
Akara Resources Public Company Limited

19th Floor, Sathorn Thani Building 2
No. 92/54-55 North Sathorn Road
Kwaeng Silom, Khet Bangrak
Bangkok 10500
Thailand

Tel:
Fax:

+66 2 233 9469
+66 2 236 5512

Chatree Mine Office
Akara Resources Public Company Limited

No. 99 Moo 9, Tambon Khao Chet Luk
Amphur Thap Khlo
Phichit 66230
Thailand

Tel:
Fax:

+66 56 614 500
+66 56 614 190

Chile Office
Laguna Resources Chile Ltda

San Pio X 2460 oficina 1202
Providencia, Santiago
Chile

Tel:

+56 2 2231 7565

Share Registry
Link Market Services Limited

Level 12, 680 George Street
Sydney NSW 2000
Australia

Postal address:
Locked Bag A14
Sydney South NSW 1235
Australia

+61 1300 554 474
+61 2 9287 0303

Tel:
Fax:
Email: registrars@linkmarketservices.com.au
Web: www.linkmarketservices.com.au

ADR Depository

(American Depository Receipts)
The Bank of New York Mellon
ADR Division
101 Barclay Street, 22nd Floor
New York NY 10286
USA

Tel:

+1 212 815 2293

Auditor
PricewaterhouseCoopers

Darling Park Tower 2 – 201 Sussex Street
Sydney NSW 2000
Australia

Tel:
Fax:

+61 2 8266 0000
+61 2 8266 9999

Directors

Ross Smyth-Kirk

Chairman

Peter Alexander

Non-Executive Director

Peter McAleer

Non-Executive Director

Sharon Skeggs

Non-Executive Director

Peter Warren

Non-Executive Director

Company Secretary

Ross Coyle

Chief Executive Officer

Greg Foulis

Stock Exchange Listing

Kingsgate Consolidated Limited is a Company
limited by shares, listed on the Australian
Securities Exchange (ASX) under the code KCN.
The Company’s shares also trade in the United
States of America over-the-counter (OTC) as an
American Depository Receipt (ADR) under the
code OTC: KSKGY.

Registered Office and
Principal Business Address

Kingsgate Consolidated Limited

Suite 801, Level 8, 14 Martin Place
Sydney NSW 2000
Australia

+61 2 8256 4800
Tel:
+61 2 8256 4810
Fax:
info@kingsgate.com.au
Email:
Web: www.kingsgate.com.au

www.kingsgate.com.au

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Designed and Produced by APM Graphics Management > 1800 806 930

Suite 801, Level 8
14 Martin Place
Sydney NSW 2000
Australia

+61 2 8256 4800
Tel:
+61 2 8256 4810
Fax:
Email:
info@kingsgate.com.au
Web: www.kingsgate.com.au